EACH wants CCP exemption from bail-ins
14 June 2013 Brussels and New York
Image: Shutterstock
The European Association of CCP Clearing Houses (EACH) is urging regulators to exempt CCPs from the bail-in provisions of the banking recovery and resolution framework proposal.
In its regular monthly meeting on 7 June 2013, EACH discussed the recent plans to amend certain elements of the banking recovery and resolution framework. The association was fully supportive of a clause which stipulates the exclusion by resolution authorities of liabilities arising from derivatives cleared and settled through an authorised central counterparty.
Not carving out contracts cleared through CCPs from the scope of bail-in would result in obstacles to the proper operation of CCPs, said the firm; adding that it would substantially reduce the effectiveness of a CCP’s default procedures, and increase the risk of contagion to other market participants.
“In the event of member default, CCPs have rigorous procedures for the closing out of clearing members’ positions to re-establish a matched book. These arrangements crystalise losses at the earliest possible stage, and prevent contagion to other market participants.”
The inclusion of centrally-cleared contracts in the bail-in provisions of the bank recovery and resolution framework would potentially prevent CCPs exercising such procedures, added the firm. A CCP would be unable to liquidate a position with a failed clearing member which is subject to bail-in provisions. This would place the CCP in a position where it holds an un-matched book, increasing systemic risks.
“This important exclusion prevents potential damage to the stability of CCPs and consequently to the financial system and is consistent with the default management procedures in EMIR,” said chairman Marcus Zickwolff.
The members of the association also confirmed the replacement of Rory Cunningham, LCH Clearnet, by his colleague Perrine Herrenschmidt, head of public affairs at LCH Clearnet.
“I would like to thank [Cunningham] for his dedication and hard work over the last years,” said Marcus Zickwolff. “Without his constant and earnest commitment, the professionalisation of our association would not have taken place.”
In its regular monthly meeting on 7 June 2013, EACH discussed the recent plans to amend certain elements of the banking recovery and resolution framework. The association was fully supportive of a clause which stipulates the exclusion by resolution authorities of liabilities arising from derivatives cleared and settled through an authorised central counterparty.
Not carving out contracts cleared through CCPs from the scope of bail-in would result in obstacles to the proper operation of CCPs, said the firm; adding that it would substantially reduce the effectiveness of a CCP’s default procedures, and increase the risk of contagion to other market participants.
“In the event of member default, CCPs have rigorous procedures for the closing out of clearing members’ positions to re-establish a matched book. These arrangements crystalise losses at the earliest possible stage, and prevent contagion to other market participants.”
The inclusion of centrally-cleared contracts in the bail-in provisions of the bank recovery and resolution framework would potentially prevent CCPs exercising such procedures, added the firm. A CCP would be unable to liquidate a position with a failed clearing member which is subject to bail-in provisions. This would place the CCP in a position where it holds an un-matched book, increasing systemic risks.
“This important exclusion prevents potential damage to the stability of CCPs and consequently to the financial system and is consistent with the default management procedures in EMIR,” said chairman Marcus Zickwolff.
The members of the association also confirmed the replacement of Rory Cunningham, LCH Clearnet, by his colleague Perrine Herrenschmidt, head of public affairs at LCH Clearnet.
“I would like to thank [Cunningham] for his dedication and hard work over the last years,” said Marcus Zickwolff. “Without his constant and earnest commitment, the professionalisation of our association would not have taken place.”
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