As one of primary defenses against systemic market events, the stability of Central Counterparty Clearing Houses (CCPs) is of paramount importance to regulators worldwide. For this reason, the European Commission is pressing ahead with continued regulations on CCP oversight, recovery and resolution. It has now proposed that ESMA, the European Securities and Markets Authority, gets a role in overseeing EU and non-EU CCPs so as to reduce inconsistencies in the regulatory approaches adopted by different national competent authorities.

Speaking at The Network Forum in Vienna at the end of June 2018, Roger Storm, Head Regulation, Risk & Committees, SIX x-clear, said that pan-EU CCP risk and resolution standards were welcome and will help create a level playing field for competing infrastructures. However, there were concerns among some panelists that some of the proposals could impede the ability of CCPs to evolve and could add substantial costs.

European stress tests of CCPs have shown them to be very robust, and the overseers’ focus is now shifting to the risk of a CCP default for other reasons than a default of a clearing member (“Non-Default Losses”), and who is liable. The panel proceeded to discuss the application of the “polluter pays” principle, whereby the parties engaged in the decision-making regarding projects or investments should be the ones financially liable. The issue is, however, not only a question of additional collateral, as for example a cyberattack. Furthermore, the new regulations will require CCPs to also look at the risk of its suppliers, such as settlement banks, payment banks and repo counterparties. This will draw in banks, not just as users of CCPs, but also as their service providers.

Brexit was also touched upon, amid ongoing concern that a large portion of EU-issued securities are traded and cleared in London. It was noted that a segregation of trade flows and clearing will lead to fragmentation, potential liquidity shortages and higher margin costs for clearing members. Panelists acknowledged that preparing for Brexit is not straightforward given the uncertainty around the exit terms. “Brexit creates a lot of unknown unknowns, and CCPs are having to deal with a significant amount of uncertainty as a result,” said Roger Storm. He underlined the service continuity assurance commitment of SIX, and that it is filing for a license renewal in the UK as requested by the Bank of England for all non-EU financial firms, and the already existing ESMA recognition giving passporting and servicing rights for the whole EU/EEA.