The European Commission proposed on 28 November 2016 new rules to ensure that systemic market infrastructures in the financial system, known as Central Counterparties (CCPs), can be dealt with effectively when things go wrong.
A CCP acts as the intermediary to both sides of a transaction in a financial instrument, including bonds, equities, derivatives andcommodities (such as agricultural products, oil and natural gas). They are critical in helping to reduce risks and interconnections through the financial system. They help financial firms and end users such as corporates manage their business risks. The scale and importance of CCPs in Europe and globally has nearly doubled since the post-crisis G20 commitment to clear standardised over-the-counter (OTC) derivatives through CCPs. A large proportion of the EUR 500 trillion of derivatives contracts that are outstanding globally are cleared by 17 CCPs across Europe.
The proposed rules for CCPs set out provisions comparable to those in the recovery and resolution rules for banks (Bank Recovery and Resolution Directive– BRRD) and are based on international standards. However, as CCPs are very different businesses to banks, this proposal contains CCP-specific tools that better align with CCPs' default management procedures and operating rules, especially to determine how losses would be shared. The proposed rules require CCPs and authorities to prepare for problems occurring, intervene early to avert a problem, and step in when things have gone wrong.
The draft Regulation will now be submitted to the European Parliament and the Council of the EU for their approval and adoption.
More information: http://europa.eu/rapid/press-release_MEMO-16-3990_en.htm