CCP resolution: the latest design considerations

Author: Gemma Varriale | Published: 8 May 2013
Clearinghouses net-out complex webs of exposure, which is why they need resolution plans

KEY TAKEAWAYS

  • A Bank of England report, published on April 29, analyses the options available to clearinghouses in formulating detailed plans on how they would allocate losses in the event of a default that burns through the company’s emergency funds;
  • There are several options available for the design of these rules, each with its own set of advantages and drawbacks;
  • To date, the two broad options CCPs have used are calling additional financial resources from clearing members, and reducing the claims of the clearing members on the CCP;
  • The latter option indicates CCPs are not a complete way of negating risks from centrally cleared transactions;
  • Another point for rule-makers to bear in mind is that each CCP’s situation, and the interests of the clearing members, will be different.

A recent Bank of England report set...