In the EU there are 17 CCPs operating in several market segments, including equities, bonds, energy, commodities, repos, clearing cash instruments and both exchange-traded and OTC derivatives. While a few CCPs offer clearing services in specific market segments, several EU CCPs are active in multiple market segments. Moreover, through their participants they often have cross-border interdependencies with trading venues and post-trading market infrastructures in other Member States or countries outside the EU. Some CCPs have also established interoperability arrangements that further increase the interdependencies with each other. Finally, the entry into force of the clearing obligation for interest rate and credit derivatives will further increase the reliance of markets on CCPs. Last Tuesday the first phase of the clearing obligation for interest rate derivatives in the G4 country currencies started for existing clearing members.
Following the establishment of a single rulebook on CCP requirements, ESMA has promoted supervisory convergence for CCPs across the EU to ensure that they apply the requirements consistently under EMIR. We have used various measures to achieve convergence.
Firstly, through participating in CCP colleges, developing guidelines, opinions, Q&As and performing peer reviews of national competent authorities’ supervisory activities, ESMA has contributed to the consistent implementation of EMIR. In particular, by participating in every CCP college under EMIR we have a privileged overview of developments across EU CCPs. We have seen that, especially during the authorisation phase, EU CCPs have enhanced their risk frameworks to ensure compliance with the new requirements under EMIR.
Secondly, through validating significant changes to CCPs’ models and parameters, ESMA has ensured that such changes do not affect a CCP’s compliance with EMIR and, where relevant, we have identified areas for improvement to enhance such compliance.
Finally, through the EU-wide stress tests, which have been published recently, ESMA has assessed the resilience of CCPs to adverse market developments.
It is of primary importance that CCPs develop their recovery plans and they should do that in line with international standards. Some EU CCPs have already presented a recovery plan to their competent authorities. Others are in the process of doing so. Although under EMIR there is no requirement for CCPs to develop recovery plans, I would like to recall that in September 2014 ESMA adopted Guidelines and Recommendations regarding the implementation of PFMI in respect of CCPs. As the PFMI contain provisions requiring CCPs to develop recovery plans, ESMA urges EU CCPs to also comply promptly with these provisions. They should do this in line with the guidance provided in the 2014 CPMI-IOSCO report on the recovery of FMIs.
Besides CCP recovery plans, there is also a role for public authorities to intervene when CCPs cannot achieve recovery alone. When recovery plans fail, resolution authorities should be established to ensure the continuity of critical services for the stability of financial markets. ESMA appreciates the guidance provided by the FSB in its 2014 report on the key attributes of an effective resolution regime for financial institutions, and strongly supports the implementation of resolution regimes for CCPs.
In my view, CCP resolution tools should aim to preserve the continuation of critical services while redistributing losses to the CCP’s shareholders and/or user community. In general, I believe that resolution authorities should have discretion to select the resolution tool to apply in a given scenario from the widest possible list: it is better to have one extra tool in the authorities’ toolkit than one less. Where tools have a significant impact on the overall market, and CCP clearing members and their clients, additional safeguards and further scrutiny can be introduced before they are used. Hence, the solution should not simply be to eliminate them from the list of eligible tools.
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