The Clearing House ("TCH") and ISDA published a white paper identifying key issues for regulators to consider when developing a comprehensive resolution framework for systemically important central counterparties ("CCPs"). The recommendations are intended to "build on, supplement and, in some instances, offer . . . perspective on the CCP resolution framework," which was proposed in the Financial Stability Board's Key Attributes of Effective Resolution Regimes for Financial Institutions.

TCH and ISDA recommended the following solutions to the "key issues" of CCP resolution:

  • CCP Resolution Plans. At a minimum, CCPs should be required to prepare resolution plans (i.e., living wills) in order to (i) facilitate both continuity and resolvability, if the CCP is placed in resolution; (ii) facilitate optimal coordination between the CCP and relevant authorities, particularly at a cross-border level; and (iii) incorporate resolution tools and strategies designed to achieve continuity while ensuring that, in resolution, no clearing participant is divested of the entitlements and protections provided under the relevant CCP rulebook. The resolution plans should be made available to clearing participants.
  • Resolution Triggers. Continuity is the default objective of resolution, though it may prove not to be the optimal solution for particular situations in every case. The resolution authority should develop consultative and decision-making processes while coordinating with a CCP's supervisory regulator in order to facilitate informed and unburdensome decision-making.
  • Resolution Framework and Authority. Resolution frameworks should (i) take into account any applicable interoperability arrangements with other financial market infrastructures (e.g., cross-margining arrangements) that may be relevant to resolution, (ii) be reviewed rigorously in order to ensure that they contain the necessary legal authorities to maintain the Key Attributes, and (iii) be evaluated carefully for potential interactions that involve the simultaneous resolution of a CCP and one or more of its participants.
  • "Siloing" Clearing Services. Authorities should ensure that CCP resolution plans present a credible strategy for achieving resolution objectives – particularly whether it avoids contagion or other destabilizing effects – through analysis of the structure of a CCP's siloing arrangements.
  • Resolution Tools. Although resolution authorities should have the authority to enforce any recovery tools or measures specified in the CCP rulebook, the enforcement of any recovery or other tools in resolution should not (i) impair the effective resolution of a CCP, (ii) further destabilize the CCP, or (iii) violate protections and entitlements under CCP rules. Initial margin haircutting should not be allowed under any circumstances in CCP resolution or, alternatively, by CCPs as a recovery tool.
  • CCP Funding and Resources. Resolution planning should consider appropriate mechanisms to facilitate funding and anticipate potential delays or shortfalls in the replenishment of a CCP's default fund. Regulatory authorities also should recognize that flexibility might be required through temporary relief from minimum default fund sizing requirements, or minimum capital or liquidity requirements, in order to facilitate resolution.
  • Limited and Temporary Relief from Regulatory Requirements. Resolution regimes should provide the authority, when applicable, to grant time-limited relief from certain CCP regulatory requirements and its clearing participants.

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