The European Association of CCP Clearing Houses (EACH) publishes today the EACH note on CCP Recovery and Resolution “Let’s make markets safer, not weaker”, outlining our position on what we understand is the compromise proposal of the Croatian Presidency. During the unusual market conditions of the COVID-19 environment, CCPs have shown once more their resilience to extreme market moves and the robustness of their risk management set up under EMIR to ensure the protection of the economy as a whole, and importantly the protection of taxpayers. We would like to make markets safer, not weaker. EACH therefore supports the Croatian Presidency compromise as we understand is balanced and carefully crafted. In the finalising the negotiations, we suggest that authorities consider the following:
- Public funds – EACH supports the proposal to strengthen the language and include a recoupment mechanism from all CCP stakeholders in the legislation in order to avoid the use of taxpayers’ money.
- Compensation linked to NCWO – EACH welcomes the compromise proposal of the Croatian Presidency to combine the positions of the European Parliament and the Council with a strong No-creditor-worse-off (NCWO) safeguard, as compensation would only be granted to clearing members if they are worse off in resolution than in insolvency.
- 2nd skin in the game (SIG) – EACH recalls that no quantitative justification has been given for this increase: the European Commission legislative proposal, the ESMA Stress Tests on CCPs and the European Parliament’s work on EMIR REFIT never suggested that a different calibration of the SIG was needed. In the spirit of compromise, however, EACH supports the Croatian Presidency’s proposal to add a 2nd layer SIG at the beginning of recovery without the obligation to prefund it and to introduce proportionality for the smaller CCPs, thereby mitigating the negative impact of a prefunded SIG.
- Lockdown period – EACH could support the proposal by the Croatian Presidency to introduce a lockdown period, provided that such period would start after the full exhaustion of the default fund, once recovery is triggered, and does not last more than two years.
- Variation margin gain haircutting (VMGH) – CCPs should retain the flexibility of determining the amount, type and sequencing of tools best fit for their markets in cooperation with their clearing members and clients and with the approval of their NCA.
For more information, please find attached the EACH note or visit our website www.eachccp.eu