The World Federation of Exchanges (WFE) has published a position paper regarding Additional (‘Alternative’) Resources for Recovery, Resolution, and Non-Default Loss at Central Counterparty clearing houses (CCPs).
Whilst the scenarios in which a CCP would need to be resolved are extreme and remote, the WFE seeks to outline the implications of potential standards that call for additional financial resources from CCPs and/or alternative resources as part of the default waterfall.
The paper outlines the need for CCPs to determine the appropriate design of waterfalls to preserve incentives for market participants to effectively manage risk, and for regulatory efforts to consider the uniqueness of CCP ownership structures, products, and markets.
Finally, the paper also highlights that international standard setters should carefully consider measures which may disincentivise contract continuity and reduce overall systemic risk protection.