European Commission plans framework to safeguard CCPs

The EC has proposed a new recovery and resolution toolkit for potential failing CCPs.

By Joe Parsons

The European Commission has proposed a set of measures to prevent a potential failure and bailout of Europe's 17 clearing houses.

The proposals set out a framework for the recovery and resolution of central counterparties (CCPs), and when national authorities can intervene to prevent its failure.

“The key purpose of this legislation should be to ensure every possible measure is in place to prevent tax payers from having to bail out CCPs – either through central bank money or direct public intervention,” says Kay Swinburne, Conservative MEF, European Parliament.

“We need to ensure that the structure of recovery and resolution plans, that hopefully will never be used, incentivises every day good governance and risk management of CCPs. Ensuring that those with a say in the risk management of CCPs ultimately bear the brunt of the burden should these fail.”

Europe’s main CCPs include LCH, the largest global OTC derivatives clearing house, Eurex Clearing, ICE Clear Europe and CME Clearing Europe.

CCPs have become systemically important market infrastructures following new rules that have migrated bilateral OTC derivatives trading through central clearing.

"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… It will complement the stronger regulation of derivatives markets that we put in place after the crisis,” added EC vice president Valdis Dombrovskis, responsible for financial stability, financial services and capital markets union.