CCP recovery and resolution: preventing a financial catastrophe

Abstract

Purpose This paper aims to discuss the European Commission’s proposal for a central counterparty (CCP) recovery and resolution regulation. In this respect, the paper comments the consequences, risks and attention points for CCPs and their authorities. Design/methodology/approach This paper focuses on the proposed rules surrounding CCP recovery and resolution. The paper first familiarizes the reader with the risk management procedures currently obliged before discussing the resolution and recovery provisions foreseen in the proposal. Findings The proposed regulation commands significant requirements for CCPs and for their regulators. Not only will CCPs have to draft a recovery plan but also a resolution authority will need to be assigned. The latter will have the task, in consultation with a resolution college, to draft a resolution plan. When a resolution is inevitable, authorities will need to assure the continuation of the CCP’s critical functions, thereby warranting financial stability and investor protection. Originality/value To the best of the author’s knowledge, there are no other papers that provide a holistic overview of the newly proposed regulation and describe the choices to be made during a CCP’s resolution. This paper will be of interest to all CCPs and their stakeholders, such as their regulators, clearing members and their clients and other linked financial market infrastructures.