All safe? The latest and what’s next in CCP recovery and resolution

Banks are worried enough about the risk of having to pay for mistakes they themselves make in business. The mutual responsibilities that they can face as clearing members, if another one of those at their clearinghouse would default, adds the next layer: the risk of having to pay for mistakes that someone else made and you had no control over.

Setting the cost-splitting rules for the highly rare but potentially disastrous situations when things go wrong at the clearinghouse is a delicate balance. Banks have suggested that clearinghouses should stake more of their own money into the reserve funds (as “skin in the game”). The clearinghouses, perhaps naturally, emphasise the problems it could entail.

The discussion is age-old, but are we up for changes in practice? If so, will they be driven by the market or by regulation? What would such changes look like, and how would they affect clearing members and their market-participant clients?

Seek a bit of background? PostTrade 360° has previously looked into this in articles/sessions including this one (Stockholm 2023) and this one (Stockholm 2021).

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