The European Association of CCP Clearing Houses (EACH) last week urged regulators to exempt central counterparties (CCPs) from the bail-in provisions of the banking recovery and resolution framework proposal.
The body says that the inclusion of CCP cleared contracts in the bail-in provisions would be counter to a number of the provisions in the European Markets Infrastructure Regulation (EMIR), following discussions at the association’s latest meeting.
EACH states that it supports the notion to include a clause stipulating the exclusion by resolution authorities of liabilities stemming from derivatives that are 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. It would substantially reduce the effectiveness of a CCP’s default procedures, and increase the risk of contagion to other market participants.”
This would result, in the event of member default, in the requirement of rigorous procedures for the closing out of clearing members’ positions, in order to re-establish a matched book, says EACH.
Marcus Zickwolff, EACH chairman, says, “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.”
Also discussed at the meeting was the replacement of Rory Cunningham, LCH.Clearnet, on the body’s board. He is being succeeded by Perrine Herrenschmidt, head of public affairs at LCH Clearnet.