WFE calls for CCP control over recovery plans
08 February 2017 Paris
Image: Shutterstock
The World Federation of Exchanges (WFE) has deemed a scenario where a central counterparty (CCP) would need to initiate a recovery plan as 鈥渂eyond extreme鈥� and asked for patience from regulators in administering resolutions.
In a recent , which discussed appropriate measures to mitigate the potential market disruption of a CCP going into recovery or resolution, WFE outlined the importance of allowing CCPs time to conduct their own processes in stress scenarios, without regulatory interference.
鈥淩ecovery should be given every chance of success in the interests of maintaining the stability of the wider system. Resolution authorities should not interfere with or override the CCP鈥檚 recovery process,鈥� WFE鈥檚 whitepaper said.
鈥淐CP rulebooks should focus on establishing the appropriate tools and procedures to address stress in their markets in order to ensure a CCP鈥檚 critical functions endure during market disruption,鈥� it continued.
鈥淭hese rulebooks will include robust tools designed to ensure the return to matched book and full allocation of losses under a process run by the clearing house. Such rules have been developed using industry guidance and reviewed by the relevant authorities (and market participants through the rule change governance procedures) ensuring CCPs are able to execute them appropriately and in a timely fashion.鈥�
鈥淗owever, by definition, any recovery and/or resolution event is beyond extreme but plausible as currently defined. As such it would be impossible to plan the precise tools to be used in any given scenario.鈥�
The federation also called on national regulators to agree international standards as closely as possible and refrain from extraterritoriality to enhance the likelihood of cross-border cooperation in global markets.
In a recent , which discussed appropriate measures to mitigate the potential market disruption of a CCP going into recovery or resolution, WFE outlined the importance of allowing CCPs time to conduct their own processes in stress scenarios, without regulatory interference.
鈥淩ecovery should be given every chance of success in the interests of maintaining the stability of the wider system. Resolution authorities should not interfere with or override the CCP鈥檚 recovery process,鈥� WFE鈥檚 whitepaper said.
鈥淐CP rulebooks should focus on establishing the appropriate tools and procedures to address stress in their markets in order to ensure a CCP鈥檚 critical functions endure during market disruption,鈥� it continued.
鈥淭hese rulebooks will include robust tools designed to ensure the return to matched book and full allocation of losses under a process run by the clearing house. Such rules have been developed using industry guidance and reviewed by the relevant authorities (and market participants through the rule change governance procedures) ensuring CCPs are able to execute them appropriately and in a timely fashion.鈥�
鈥淗owever, by definition, any recovery and/or resolution event is beyond extreme but plausible as currently defined. As such it would be impossible to plan the precise tools to be used in any given scenario.鈥�
The federation also called on national regulators to agree international standards as closely as possible and refrain from extraterritoriality to enhance the likelihood of cross-border cooperation in global markets.
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