On August 27, the European Securities and Markets Authority (ESMA) published a discussion paper (Discussion Paper) on the review of Article 26 of ESMA’s Regulatory Technical Standards (153/2013) (RTS) under the European Market Infrastructure Regulation applicable to client accounts of central counterparties (CCPs). The publishing of the discussion paper opens a public consultation on the RTS aimed at the following three stakeholders: (1) CCPs, (2) clearing members of the CCPs, and (3) clients (whether financial or non-financial) of the clearing members of the CCPs (collectively, the stakeholders).

ESMA is seeking commentary on the RTS applicable to client clearing to determine if it is necessary to develop a revised draft to be submitted to the European Commission (EC) for endorsement in the form of an EC Delegated Regulation. Such Delegated Regulation would be legally binding across all member states of the European Union.

The Discussion Paper addresses the fact that to date the EC has not deemed the United States to have a legal and supervisory regime for CCPs that is equivalent to that of the European Union. The fact that the minimum liquidation period for financial instruments other than over-the-counter derivatives for client accounts is one day for US CCPs (applied on a gross basis) and two days for EU CCPs (applied on a net basis) has been viewed by the EC as a critical distinction between the two regimes. The Discussion Paper asks for commentary from the stakeholders as to whether client margins maintained at the CCP level on a gross margining basis with a one-day liquidation period would generally be higher than margins held at the CCP level on a net margining basis with a two-day liquidation period, to aid ESMA in its decision as to whether the RTS should be revised to permit one-day gross margining for client accounts.

The consultation period for the Discussion Paper ends on September 30.

A copy of the Discussion Paper can be found here.