ISDA Response To HMT Regarding ‘Amendments To The Recognition Requirements For Investment Exchanges

This letter contains the response of the International Swaps and Derivatives Association, Inc. (“ISDA”) to the HM Treasury (“HMT”) Consultation Paper on ‘Amendments to the recognition requirements for investment exchanges and clearing houses’. We are grateful for HMT raising this matter with us and providing additional time for response.

We emphatically support the aim of HMT to protect CCPs from financial shock and agreethat CCPs should have in place recovery plans and loss allocation rules to cover losses arising as the result of members’ default. We also acknowledge that service interruption for systemically important CCPs must be avoided. Accordingly, CCPs must have robust recovery plans that provide clear procedures setting out how to deal with losses that exceed a CCP’s financial resources above the minimum regulatory capital requirement, regardless of whether they are the result of member defaults or non-default losses (“NDL”). However, the need to prevent service interruption does not necessarily entail that all losses must be allocated immediately; service continuity only implies that a CCP must be able to make all paymentsas and when due. Loss allocation mechanisms cannot be developed in isolation but must bepart of a CCP’s overall recovery strategy.

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