EU proposes recovery and resolution rules for clearing houses

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The European Commission said in a November 28 statement that its proposals will give authorities and clearing houses the means to act in a crisis. These include the ability to sell all or part of a failing CCP and even creating a new “bridge” CCP comprising essential functions that could later be sold on.

Also known as central counterparties, clearing houses perform a critical role across financial instruments including bonds, equities, derivatives and commodities, providing guarantees in the event of a default.

They have become critical pieces of financial market infrastructure since the financial crisis, following which the G20 committed to direct standardised over-the-counter derivatives to CCPs in order to make markets safer.

Valdis Dombrovskis, European Commission vice-president responsible for financial stability, financial services and capital markets union, said: “This proposal will strengthen Europe’s financial system further and aims at protecting taxpayers by ensuring we can deal with a central counterparty if it falls into difficulty.”

The Commission’s proposals will be closely watched by the EU’s 17 CCPs, which clear a large proportion of the €500 trillion of derivatives outstanding.

New data published on November 10 by the Bank for International Settlements illustrated that clearing houses were becoming part of the fabric of derivatives markets.The data showed that around 62% of the $ 544 trillion in notional outstanding derivatives contracts were being centrally cleared at the end of June.

More to follow…

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