Thirteen industry stakeholders made up of major global banks and industry associations responded, with largely positive feedback on ESMA’s proposals.
For the repo world, the incoming MMF Regulation (MMFR) presents an opportunity, rather than another burden to be avoided.
The Irish Funds Industry Association (IFIA) said it best in its response letter to ESMA: “Following the implementation of the MMFR, MMFs will become more reliant on short-term reverse repos.
This fact underscores the importance of ensuring that the conditions for reverse repos falling under Article 15(6) are appropriately calibrated and future-proofed.”
“This is particularly the case in light of the capital conditions being imposed on banks under the fourth Capital Requirements Directive, which mean that banks are increasingly constrained in the level of short-term repo in which they can engage.”
Stakeholders were offered five options on how best to manage liquidity and credit risk, and the industry was almost totally united in its response.
On liquidity, 10 of the 13 respondents favoured option A, which focused the measurement of risk on the counterparty to the trade, as opposed to the theoretical liquidity of the collateral itself, or piggybacking of other existing regulatory collateral standards.
Subscribe for free to the next issue of Securities Lending Times, published on 22 August, to read the full article on money market fund reverse repo collateral rules.