As a result of global mandates that require standardized derivatives to be centrally cleared, it is estimated that more than 70% of swaps are currently cleared, which has led to significantly increased concentrations of risk within CCPs. Earlier this year, the Financial Stability Board (FSB) announced that it will issue for public consultation standards or guidance for CCP resolution planning, resolution strategies and resolution tools. This white paper is intended to inform that effort.
“Having devoted considerable thought and resources to ensuring the resolvability of the world’s largest banks, it is now time to take the lessons learned in that process and ensure that CCPs – where much risk has been concentrated by the post-crisis regulatory regime – are equally resolvable,” said Greg Baer, President of The Clearing House Association.
“The primary focus of regulators and market participants should be on CCP resilience and developing robust CCP recovery frameworks. Nonetheless, we can’t ignore the issue of CCP resolution and the impact the collapse of a CCP would have on financial stability. It’s therefore important this issue is considered in depth,” says Scott O’Malia, ISDA’s Chief Executive.
The paper, Considerations for CCP Resolution, identifies potentially significant resolution tools or approaches for further discussion and evaluation by the official sector and industry.
The paper attempts to both highlight and endorse the thoughtful guidance that has been codified in the FSB’s Key Attributes of Effective Resolution Regimes for Financial Institutions and to document and identify, from the perspective of clearing members and other clearing participants, important, related considerations that must be addressed in developing a workable and comprehensive resolution framework for systemically important CCPs.
About The Clearing House. The Clearing House is a banking association and payments company that is owned by the largest commercial banks and dates back to 1853. The Clearing House Payments Company L.L.C. owns and operates core payments system infrastructure in the United States and is currently working to modernize that infrastructure by building a new, ubiquitous, real-time payment system. The Payments Company is the only private-sector ACH and wire operator in the United States, clearing and settling nearly $2 trillion in U.S. dollar payments each day, representing half of all commercial ACH and wire volume. Its affiliate, The Clearing House Association L.L.C., is a nonpartisan organization that engages in research, analysis, advocacy and litigation focused on financial regulation that supports a safe, sound and competitive banking system.
About ISDA
Since 1985, ISDA has worked to make the global derivatives markets safer and more efficient. Today, ISDA has over 850 member institutions from 67 countries. These members comprise a broad range of derivatives market participants, including corporations, investment managers, government and supranational entities, insurance companies, energy and commodities firms, and international and regional banks. In addition to market participants, members also include key components of the derivatives market infrastructure, such as exchanges, intermediaries, clearing houses and repositories, as well as law firms, accounting firms and other service providers. Information about ISDA and its activities is available on the Association's website: www.isda.org.