In a recent whitepaper, which discussed appropriate measures to mitigate the potential market disruption of a CCP going into recovery or resolution, WFE outlined the importance of allowing CCPs time to conduct their own processes in stress scenarios, without regulatory interference.
“Recovery should be given every chance of success in the interests of maintaining the stability of the wider system. Resolution authorities should not interfere with or override the CCP’s recovery process,” WFE’s whitepaper said.
“CCP rulebooks should focus on establishing the appropriate tools and procedures to address stress in their markets in order to ensure a CCP’s critical functions endure during market disruption,” it continued.
“These rulebooks will include robust tools designed to ensure the return to matched book and full allocation of losses under a process run by the clearing house. Such rules have been developed using industry guidance and reviewed by the relevant authorities (and market participants through the rule change governance procedures) ensuring CCPs are able to execute them appropriately and in a timely fashion.”
“However, by definition, any recovery and/or resolution event is beyond extreme but plausible as currently defined. As such it would be impossible to plan the precise tools to be used in any given scenario.”
The federation also called on national regulators to agree international standards as closely as possible and refrain from extraterritoriality to enhance the likelihood of cross-border cooperation in global markets.