Central clearing counterparties’ recovery and resolution: Where do we stand in the European Union?

Abstract

This paper contributes to the literature on the recovery and resolution of central clearing counterparties (CCPs). It provides an updated overview of the current debate in the European Union (EU) for some selected topics and discusses the key elements of the European Commission’s (EC) proposal on the recovery and resolution of CCPs in light of the related European Parliament’s report, Financial Stability Board (FSB) reference texts and the European Central Bank (ECB) Opinion. Following the G20 commitments to strengthen over-the-counter (OTC) derivatives markets, in particular, the clearing obligation, CCPs have been placed at the centre of an increasing number of financial transactions, thereby becoming increasingly systemic. The default of a clearing member at the Nasdaq Clearing in early September 2018 reminds us that extreme events can occur and that CCPs and resolution authorities should be better prepared in case default procedures do not perform as expected. In Europe, the EC proposed a framework that is intended to contribute to the preservation of financial stability and the protection of public money. This framework is aligned with international standards, the subsequent European Parliament’s report and the ECB Opinion. Once the Council will have adopted its negotiation position, the EU co-legislators should soon be in a position to conclude their work on this important piece of legislation.