Date: 2020-03-27Category: Not ApplicableState: Union GovernmentCountry: Europe
Commission Delegated Regulation (EU) 2020/448 of 17 December 2019 amending Delegated Regulation (EU) 2016/2251 as regards the specification of the treatment of OTC derivatives in connection with certain simple, transparent and standardised securitisations for hedging purposes (Text with EEA relevance)
Executive Summary:
Commission Delegated Regulation (EU) 2020/448 amends Delegated Regulation (EU) 2016/2251 to ensure consistent treatment of derivatives associated with covered bonds and securitisations regarding margin requirements for non-centrally cleared OTC derivatives. It addresses impediments faced by securitisation special purpose entities in providing collateral. The regulation specifies risk-mitigation techniques for OTC derivative contracts not cleared by a central counterparty and concluded by a securitisation special purpose entity in connection with a securitisation. This regulation enters into force twenty days after its publication in the Official Journal of the European Union.
Key Points / Main Content:
* **OTC Derivatives and Securitisation Special Purpose Entities:**
* The regulation focuses on OTC derivative contracts not cleared by a central counterparty concluded by a securitisation special purpose entity (SSPE) in connection with a securitisation.
* **Risk Mitigation Techniques and Collateral:**
* Under specific conditions for Simple, Transparent, and Standardised (STS) securitisations, SSPEs are not required to post collateral.
* SSPEs must collect variation margin in cash from their counterparties and return it when due.
* **Counterparty Obligations:**
* Counterparties of SSPEs in connection with STS securitisations are required to post variation margin in cash.
* Counterparties have the right to receive back part or all of the variation margin.
* **Conditions for Derogation from Article 22:**
* The counterparty to the OTC derivative must rank at least pari passu with the holders of the most senior securitisation note.
* The SSPE must be subject to a level of credit enhancement of the most senior securitisation note of at least 2% of the outstanding notes on an ongoing basis.
* The netting set must not include OTC derivative contracts unrelated to the securitisation.
Impact Analysis:
* **Securitisation Special Purpose Entities (SSPEs):**
* Impact: SSPEs involved in STS securitisations gain flexibility in collateral posting requirements, reducing liquidity constraints. They are required to collect and return variation margin in cash.
* Action Required: SSPEs must ensure they meet the conditions specified in Article 30a, paragraph 2 to be eligible for the adjusted collateral requirements.
* **Counterparties of SSPEs:**
* Impact: Counterparties are required to post variation margin in cash to SSPEs in STS securitisations and have the right to receive it back when due.
* Action Required: Counterparties must adjust their risk management procedures to comply with the new variation margin posting requirements.
* **European Banking Authority (EBA), European Insurance and Occupational Pensions Authority (EIOPA) and European Securities and Markets Authority (ESMA):**
* Impact: These authorities were consulted and provided input on the regulatory technical standards upon which this regulation is based.
* Action Required: Monitor the implementation and impact of the regulation on the securitization market and OTC derivative practices.
Key Entities Referenced
European Commission: The executive branch of the European Union responsible for proposing legislation, implementing decisions, and managing the EU's day-to-day affairs.
Regulation EU No 648/2012: Regulation of the European Parliament and of the Council on OTC derivatives, central counterparties and trade repositories (also known as EMIR).
Regulation EU 2017/2402: Regulation of the European Parliament and of the Council laying down a general framework for securitisation and creating a specific framework for simple, transparent and standardised securitisation.
Commission Delegated Regulation EU 2016/2251: Commission Delegated Regulation supplementing Regulation EU No 648/2012 with regard to regulatory technical standards for risk-mitigation techniques for OTC derivative contracts not cleared by a central counterparty.
OTC derivatives: Over-the-counter derivatives, which are derivative contracts that are not traded on an exchange or through a central counterparty.
European Banking Authority: A European Union agency responsible for regulating and supervising the banking sector across Europe.
European Insurance and Occupational Pensions Authority: A European Union agency that oversees the insurance and occupational pensions sectors.
European Securities and Markets Authority: A European Union financial regulatory agency responsible for ensuring the integrity, transparency, efficiency and orderly functioning of European securities markets.
L 94/8 E N O f f i c i a l J o u r n a l o f t h e E u r o p e an Union 27.3.2020
COMMISSION DELEGATED REGULATION (EU) 2020/448
of 17 December 2019
amending Delegated Regulation (EU) 2016/2251 as regards the specification of the treatment of OTC
derivatives in connection with certain simple, transparent and standardised securitisations for
hedging purposes
(Text with EEA relevance)
THE EUROPEAN COMMISSION,
Having regard to the Treaty on the Functioning of the European Union,
Having regard to Regulation (EU) No 648/2012 of the European Parliament and of the Council of 4 July 2012 on OTC
derivatives, central counterparties and trade repositories(1), and in particular Article 11(15) thereof,
Whereas:
(1) Article 11(15) of Regulation (EU) No 648/2012 has been amended by Article 42(3) of Regulation (EU) 2017/2402
of the European Parliament and of the Council(2). That amendment was made to ensure that, with regard to the
margin requirements for non-centrally cleared OTC derivatives, derivatives associated with covered bonds and
derivatives associated with securitisations are treated in the same manner. Since Commission Delegated Regulation
(EU) 2016/2251(3) is based on Article 11(15) of Regulation (EU) No 648/2012, that Delegated Regulation should
be amended to reflect the amendment made to Article 11(15) of Regulation (EU) No 648/2012 and thus to include
rules on the risk-mitigation techniques for OTC derivative contracts not cleared by a central counterparty concluded
by a securitisation special purpose entity in connection with a securitisation.
(2) In accordance with the amended Article 11(15) of Regulation (EU) No 648/2012, such rules on the risk-mitigation
techniques for OTC derivative contracts not cleared by a central counterparty and concluded by a securitisation
special purpose entity in connection with a securitisation should take account of the impediments faced by those
securitisation special purpose entities in providing collateral. Because securitisation special purpose entities are
usually structured to generate little excess of liquidity, they have less assets to be used for the exchange of collateral.
That impediment prevents securitisation special purpose entities from exchanging collateral in a way that fully
complies with the requirements of Delegated Regulation (EU) 2016/2251. Therefore, under a specific set of
conditions securitisation special purpose entities in connection with a Simple, Transparent and Standardised (‘STS’)
securitisation should not be required to post collateral. This should allow securitisation special purpose entities in
connection with an STS securitisation some flexibility, while ensuring that the risks for their counterparties are
limited. However, there are no constraints on securitisation special purpose entities in connection with an STS
securitisation to collect collateral from their counterparties and to subsequently return it when due. Counterparties
of securitisation special purpose entities in connection with an STS securitisation are therefore required to post
variation margin in cash. They should have the right to receive back part or all of it, while securitisation special
purpose entities should only be required to collect the variation margin received in cash and to post variation
margin for the amount in cash received. This is in line with recital 41 of Regulation (EU) 2017/2402 which refers to
the need to ensure consistency in treatment between derivatives associated with covered bonds and derivatives
associated with securitisations, with regard to the clearing obligation and to the margin requirements on non-
centrally cleared OTC derivatives.
(3) Delegated Regulation (EU) 2016/2251 should therefore be amended accordingly,
(4) This Regulation is based on the draft regulatory technical standards submitted to the Commission by the European
Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and
Markets Authority.
(1) OJ L 201, 27.7.2012, p. 1.
(2) Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 laying down a general framework for
securitisation and creating a specific framework for simple, transparent and standardised securitisation, and amending Directives
2009/65/EC, 2009/138/EC and 2011/61/EU and Regulations (EC) No 1060/2009 and (EU) No 648/2012 (OJ L 347, 28.12.2017, p. 35).
(3) Commission Delegated Regulation (EU) 2016/2251 of 4 October 2016 supplementing Regulation (EU) No 648/2012 of the European
Parliament and of the Council on OTC derivatives, central counterparties and trade repositories with regard to regulatory technical
standards for risk-mitigation techniques for OTC derivative contracts not cleared by a central counterparty (OJ L 340, 15.12.2016, p. 9).27.3.2020 E N O f f i c i a l J o u r n a l o f t h e E u r o p e a n U nion L 94/9
(5) The European Banking Authority, the European Insurance and Occupational Pensions Authority and the European
Securities and Markets Authority have conducted open public consultations on the draft regulatory technical
standards on which this Regulation is based, analysed the potential related costs and benefits and requested the
opinion of the Banking Stakeholder Group established in accordance with Article 37 of Regulation (EU)
No 1093/2010 of the European Parliament and of the Council(4), the opinion of the Insurance and Reinsurance
Stakeholder Group and the Occupational Pensions Stakeholder Group established in accordance with Article 37 of
Regulation (EU) No 1094/2010 of the European Parliament and of the Council(5), and the Securities and Markets
Stakeholder Group established in accordance with Article 37 of Regulation (EU) No 1095/2010 of the European
Parliament and of the Council(6),
HAS ADOPTED THIS REGULATION:
Article 1
Amendment to Delegated Regulation (EU) 2016/2251
In Delegated Regulation (EU) 2016/2251, the following Article 30a is inserted:
‘Article 30a
Treatment of derivatives in connection with securitisations for hedging purposes
1. By way of derogation from Article 2(2) and where the conditions set out in paragraph 2 of this Article are met,
counterparties may provide in their risk management procedures the following in connection with OTC derivatives
contracts that are concluded by a securitisation special purpose entity in connection with a securitisation as defined in
point (1) of Article 2 of Regulation (EU) 2017/2402 of the European Parliament and of the Council (*) and meeting the
conditions of Article 4(5) of Regulation (EU) No 648/2012:
(a) that variation margin is not posted by the securitisation special purpose entity but is collected from its counterparty in
cash and returned to its counterparty when due;
(b) that initial margin is not posted or collected.
2. Paragraph 1 shall apply where all of the following conditions are met:
(a) the counterparty to the OTC derivative concluded with the securitisation special purpose entity in connection with the
securitisation ranks at least pari passu with the holders of the most senior securitisation note, provided that
counterparty is neither the defaulting nor the affected party;
(b) the securitisation special purpose entity for the securitisation to which the OTC derivatives contract is associated is
subject to a level of credit enhancement of the most senior securitisation note of at least 2 % of the outstanding notes
on an ongoing basis;
(c) the netting set does not include OTC derivative contracts unrelated to the securitisation.
_____________
(*) Regulation (EU) 2017/2402 of the European Parliament and of the Council of 12 December 2017 laying down a
general framework for securitisation and creating a specific framework for simple, transparent and standardised
securitisation, and amending Directives 2009/65/EC, 2009/138/EC and 2011/61/EU and Regulations (EC)
No 1060/2009 and (EU) No 648/2012 (OJ L 347, 28.12.2017, p. 35).’
(4) Regulation (EU) No 1093/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European
Supervisory Authority (European Banking Authority), amending Decision No 716/2009/EC and repealing Commission Decision
2009/78/EC (OJ L 331, 15.12.2010, p. 12).
(5) Regulation (EU) No 1094/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European
Supervisory Authority (European Insurance and Occupational Pensions Authority), amending Decision No 716/2009/EC and
repealing Commission Decision 2009/79/EC (OJ L 331, 15.12.2010, p. 48).
(6) Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European
Supervisory Authority (European Securities and Markets Authority), amending Decision No 716/2009/EC and repealing Commission
Decision 2009/77/EC (OJ L 331, 15.12.2010, p. 84).L 94/10 E N O f f i c i a l J o u r n a l o f t h e E u r o p e a n Union 27.3.2020
Article 2
Entry into force
This Regulation shall enter into force on the twentieth day following that of its publication in the Official Journal of the
European Union.
This Regulation shall be binding in its entirety and directly applicable in all Member States.
Done at Brussels, 17 December 2019.
For the Commission
The President
Ursula VON DER LEYEN