CCP recovery—not too big to fail

CCP recovery—not too big to fail

How would the creation of a recovery framework for central counterparty clearing houses (CCPs) achieve greater transparency and financial stability? Farid Anvari, Of Counsel at Baker & McKenzie, comments on proposals for loss distribution and recovery of a CCP after it has suffered member-default losses.

Original news

ISDA proposes new recovery framework for defaulting CCPs

A CCP Default Management, Recovery and Continuity paper proposes a framework for central counterparty clearing houses’ (CCPs) recovery and sets out the tools that can be used to re-establish a matched book following the default of one or more clearing members. Produced by the International Swaps and Derivatives Associations (ISDA), the paper outlines measures that are consistent with the recommendations made by the Committee on Payments and Market Infrastructures and the International Organisation of Securities Commission in October 2014.

Why is there a perceived need for a recovery and continuity framework for CCPs?

The systemically important nature of several CCPs, along with the very large losses which CCPs can suffer relative to their capital, necessitates a formal framework for CCP recovery—particularly if taxpayers are not to bear a heavy burden for bailing them out. Ultimately, CCPs are essential to wholesale financial markets so a framework for dealing with CCPs which are at risk of failure and ensuring continuity of that CCPs’ services to the market would significantly improve financial stability.

What does the paper cover?

ISDA has put forward a set of proposals for loss distributi

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About the author:

Emma is head of the Banking and Finance team and the Finance Group at LexisNexis®UK.

Emma has wide-ranging experience in derivatives and capital markets with a particular emphasis on credit derivatives and structured products. Emma qualified as a solicitor with Allen & Overy LLP, working in the derivatives and structured finance teams in both their London and Paris offices before gaining experience with Deutsche Bank AG (advising the foreign exchange prime brokerage desk) and Crédit Agricole CIB (advising the fixed income and derivatives desk) before joining LexisNexis®.