CPMI and IOSCO published, for public comment, a discussion paper on central counterparty (CCP) default management auctions. The discussion in this paper reflects the current practices at one or more CCPs and identifies the types of factors that one or more CCPs take into account when planning and conducting default management auctions. Additionally, the discussion paper identifies certain considerations that may be useful for CCPs to take into account when planning for auctions. CPMI and IOSCO also published a cover note listing the issues on which inputs are being solicited. The comment period on this discussion paper ends on August 09, 2019.
This discussion paper is intended to facilitate the sharing of existing practices and views on default management auctions and to advance industry efforts and foster dialog on the key concepts, processes, and operational aspects used by CCPs in planning and executing effective default management auctions. The effective and smooth management of a participant default is essential to the resilience of a CCP and can help reduce systemic risk. A default management auction is one of the tools that a CCP may use to transfer a defaulting participant’s positions, or subset thereof, to a non-defaulting participant, thus restoring the CCP to a matched book. The paper presents a number of questions and invites comments on the benefits and challenges of various approaches as well as on the potential ways to overcome challenges inherent in default management auctions.
The paper focuses on the following five key aspects of the default management auctions of a CCP:
- Governance—The paper discusses the roles and responsibilities of key stakeholders in a CCP’s default management auction. The paper specifies that an effective auction process includes specifying the roles and responsibilities of the auction participants and a CCP’s board of directors, management, and other personnel, who may be involved in the auction process.
- Considerations for a successful default management auction—The paper outlines considerations of a successful default management auction and, by contrast, identifies scenarios in which a CCP may determine an auction to be unsuccessful. It also discusses activities that take place before the auction and the potential options available to a CCP in the event of an unsuccessful auction.
- Operational considerations—The paper describes the operational issues a CCP considers when planning and executing a default management auction.
- Client participation—The paper highlights that a CCP and its clearing members may take into account several considerations when deciding whether to permit or facilitate client participation, including liability of the clearing member, incentives of clients to bid competitively, the level of legal and operational readiness at the client, and the risk of information leakage.
- Default of a common participant across multiple CCPs—The paper identifies potential issues inherent when two or more CCPs conduct auctions concurrently, thus creating further operational and/or financial strains on auction participants.
Comment Due Date: August 09, 2019
Keywords: International, Banking, Securities, CCP, Systemic Risk, Default Management Auction, Governance, CPMI, IOSCO
Previous ArticleFASB Consults on Interactions Among Topics 321, 323, and 815
Next ArticleDave Ramsden of BoE Speaks on Transition from LIBOR
PRA published the policy statement PS8/21, which contains the final supervisory statement SS3/21 on the PRA approach to supervision of the new and growing non-systemic banks in UK.
EBA published a report that sets out the final draft regulatory technical standards specifying the conditions according to which consolidation shall be carried out in line with Article 18 of the Capital Requirements Regulation (CRR).
EBA updated the list of other systemically important institutions (O-SIIs) in EU.
BCBS published two reports that discuss transmission channels of climate-related risks to the banking system and the measurement methodologies of climate-related financial risks.
UK Authorities (FCA and PRA) welcomed the findings of FSB peer review on the implementation of financial sector remuneration reforms in the UK.
PRA and FCA jointly issued a letter that highlights risks associated with the increasing volumes of deposits that are placed with banks and building societies via deposit aggregators and how to mitigate these risks.
MFSA announced that amendments to the Banking Act, Subsidiary Legislation, and Banking Rules will be issued in the coming months, to transpose the Capital Requirements Directive (CRD5) into the national regulatory framework.
EC finalized the Delegated Regulation 2021/598 that supplements the Capital Requirements Regulation (CRR or 575/2013) and lays out the regulatory technical standards for assigning risk-weights to specialized lending exposures.
OSFI launched a consultation to explore ways to enhance the OSFI assurance over capital, leverage, and liquidity returns for banks and insurers, given the increasing complexity arising from the evolving regulatory reporting framework due to IFRS 17 (Insurance Contracts) standard and Basel III reforms.
ECB published results of the benchmarking analysis of the recovery plan cycle for 2019.