Title transfer collateral arrangement (TTCA)
European Union Electricity Market Glossary

 


 

 

 

According to Article 2(1)(b) of the Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on financial collateral arrangement 'title transfer financial collateral arrangement' means an arrangement, including repurchase agreements, under which a collateral provider transfers full ownership of, or full entitlement to, financial collateral to a collateral taker for the purpose of securing or otherwise covering the performance of relevant financial obligations.

 

 

Prohibition on Title Transfer Collateral Arrangements (TTCAs) with retail clients

 

 

MiFID II contains a prohibition against entering into title transfer collateral arrangements (TTCAs) with retail clients (Article 16(10) of the MiFID II).

 

Investment firms must ensure that their external auditors report at least annually to the competent authority of the home Member State of the firm on the adequacy of the firm's arrangements for respecting the above requirement (Article 8 of the Commission Delegated Directive (EU) 2017/593 of 7 April 2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council with regard to safeguarding of financial instruments and funds belonging to clients, product governance obligations and the rules applicable to the provision or reception of fees, commissions or any monetary or non-monetary benefits). 

 

A TTCA allows a client to agree that their monies or assets will be treated as collateral in respect of their existing or future obligations.

 

 

MiFID II, Article 16(10)

 

An investment firm shall not conclude title transfer financial collateral arrangements with retail clients for the purpose of securing or covering present or future, actual or contingent or prospective obligations of clients.

 

They transfer full ownership of this collateral to the firm.

 

If the firm fails, the client is generally an unsecured creditor for the value of their collateral.

 

A TTCA means that the client takes credit risk against the firm, i.e. the risk that the firm cannot pay the client back.

 

As retail clients are less likely to have the resources to understand and quantify this risk.

 

Most TTCAs with retail clients related to contracts for difference (CFDs), spreadbetting and rolling spot forex.

 

 

Inappropriate use of TTCAs

 

 

MiFID II requires firms to consider non-retail client TTCA appropriateness (Article 6 of the MiFID II Implementing Directive) including:

 

- the relationship between the TTCA and the client’s liability,


- ensuring the quantum of client funds or assets subject to the TTCA does not vastly exceed the client’s liability,


- preventing automatic, blanket use of TTCAs for all clients, without considering their liabilities.

 

Commission Delegated Regulation (EU) 2017/565 of 25.4.2016 supplementing Directive 2014/65/EU of the European Parliament and of the Council as regards organisational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive in Article 63(2)(d) requires that the statement of client assets, which investment firms holding client financial instruments or client funds send to the client at least on a quarterly basis, must include, amongst others, a clear indication of the assets or funds which are subject to the rules of MiFID II Directive and its implementing measures and those that are not, such as those that are subject to Title Transfer Collateral Agreement.

 

 



Last Updated on Wednesday, 04 October 2017 22:31
 

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