On April 30, ISDA responded to the European Securities and Markets Authority (ESMA) consultation paper on guarantees as central counterparty (CCP) collateral and certain aspects of CCP investment policy.

ISDA broadly supports ESMA’s proposed draft regulatory technical standards (RTS) to expand the use of guarantees as eligible CCP collateral, emphasizing the importance of robust eligibility conditions and strict concentration limits. The response suggests amendments to the draft RTS, on the irrevocability and unconditionality of the guarantees, and also to ensure they are payable on demand within a short time window. ISDA also suggests that the guarantee should include both the CCP and clearing member as beneficiaries where clients clear through intermediaries. ISDA also highlights the need for CCP risk committee involvement and the importance of a conservative concentration risk framework surrounding the use of the guarantees. The response raises concerns about the prudential treatment of guarantees under CRR and encourages further coordination between ESMA and the European Banking Authority EBA on this matter.