The World Federation of Exchanges on Tuesday published a white paper entitled ‘The interplay between Central Counterparty (CCP) recovery and resolution: a global perspective’, setting out the views of the exchange and CCP community from a global practitioner perspective.
Specifically, the paper outlines the position of the WFE and its global membership base on two key issues:
The boundary between recovery and resolution, and the relative responsibilities of CCPs and market authorities: and
Third country arrangements when entering, and managing, the resolution of a CCP.
In summary, and as outlined in its most recent consultation submissions on the topic, (to the FSB and to CPMI-IOSCO, in October 2016), the WFE’s position is that recovery should be given every opportunity to succeed, and resolution should only be invoked as a last resort once all appropriate recovery measures have been exhausted by the CCP.
Should resolution occur, however, the WFE advocates that there is not one single resolution strategy that will effectively manage all potential scenarios, therefore flexibility is key. In addition, cross-border cooperation is vital to ensure sound, smooth and orderly markets.
The white paper is accompanied by a one-page fact sheet on ‘Desired outcomes relating to entering (and managing) resolution’, which sets out the top ten outcomes the WFE and its membership seeks to achieve in this regard. These outcomes include that:
Regional and national authorities should implement international standards as closely as possible;
Continuity of payment, clearance and settlement services must be the primary objective, given the systemic importance of the functions they provide: and
The resolution of a CCP should be led by the Resolution Authority of the jurisdiction in which the CCP is established, in close cooperation with other relevant authorities.
Nandini Sukumar, CEO, WFE, said: “CCPs have played a key role in strengthening the system and implementing G-20 initiatives post the financial crisis. It is in their interests to have detailed resilience and recovery plans that suit the nuances of their local markets. While acknowledging the need for clear resolution plans, there needs to be clarity as to when they should be invoked. There also needs to be flexibility as to how resolution plans are executed in the interests of the wider markets and stakeholders. The white paper reflects the consensus view of the industry.”
Gavin Hill, Head of Regulatory Affairs, WFE, said: “This is a debate stoked by the recent FSB consultative document, which we will be responding to separately, and the European Commission’s CCP Regulation proposal at the end of last year. We are encouraged by the ongoing alignment and consistency of international standards between key market stakeholders. The WFE will sustain its global advocacy mandate on post-trade issues to ensure the perspectives of the exchange and CCP sector continue to be heard.”
