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BoE roundtrip on CCP interoperability arrangements

On 15 July 2015, the Bank of England published the summary of feedback received and policy response to the implementation of ESMA’s Guidelines and Recommendations on CCP interoperability arrangements.

The Consultation Paper was published on 20 November 2014, seeking comments on a shortlist of five specific issues. The paper noted that the market practice essentially followed the suggested standards, now adopted without change in the policy response:

Standard 1: level of inter-CCP margin

A CCP should, at a minimum, calibrate and collect inter-CCP margin equal to at least the level of pre-funded resources that it would collect in initial margin and default fund contribution combined from a clearing member with the same positions.

Standard 2: source of inter-CCP margin

Inter-CCP margin posted by one CCP to an interoperating CCP should be separate from, and additional to, the margins already collected by the CCP to cover its exposures to its own clearing members.

Standard 3: CCP default resources other than inter-CCP margin

A CCP should, at a minimum:

(a) include exposures to interoperating CCPs when calculating its exposure to its largest two members in extreme but plausible market conditions and use this to size the default fund and other pre-funded resources it holds; and

(b) make the default fund available to meet losses incurred following the default of an interoperable CCP.

Standard 4: loss allocation rules and post-default arrangements

The Bank will not expect a CCP to allocate losses that exceed its pre-funded resources to interoperable CCPs. The Bank will review any voluntary arrangements agreed between CCPs and their respective regulators on a case-by-case basis.

Standard 5: interoperability for derivatives products

The ESMA Guidelines, as interpreted through the Bank’s supervisory approach, will be the minimum necessary standards for any interoperability arrangement for derivative products in which UK CCPs participate, or propose to participate.

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