The European Securities and Markets Authority (ESMA) has published a speech given by its chairman, Steven Maijoor. The speech is entitled Recovery and Resolution of CCPs: let’s bring the lifeboats in place. Key points in Mr Maijoor’s speech include:


  • through the EU-wide stress tests, which have been published recently, ESMA has assessed the resilience of central counterparties (CCPs) to adverse market developments. Whilst Mr Maijoor is satisfied with the achievements of the first stress test of CCPs he accepts that there were some teething problems. In light of this ESMA is committed to improving the methodology of future stress tests and extend their scope. Mr Maijoor gives the example that he would like liquidity risks to be included in the next stress tests;
  • it is of primary importance that CCPs develop their recovery plans and that they should do so in line with international standards. Some EU CCPs have already presented a recovery plan to their national competent authority. Others are in the process of doing so. Although under EMIR there is no requirement for CCPs to develop recovery plans, Mr Maijoor recalls that in September 2014 ESMA adopted Guidelines and Recommendations regarding the implementation of the CPSS-IOSCO Principles for Financial Market Infrastructures (PFMI) in respect of CCPs. As the PFMI contain provisions requiring CCPs to develop recovery plans, ESMA urges EU CCPs to also comply promptly with these provisions. Mr Maijoor states that they should do this in line with the guidance provided in the 2014 CPMI-IOSCO report on the recovery of financial market infrastructures;
  • at the EU level the European Commission is expected to issue a proposal for a legislative regime on the resolution and recovery of CCPs towards the end of the year; and
  • in relation to resolution tools Mr Maijoor notes that CCPs do not perform banking activities and that it would be a mistake to copy blindly the bank resolution regime. In Mr Maijoor’s view CCP resolution tools should aim to preserve the continuation of critical services while redistributing losses to the CCP’s shareholders and/or user community. In general, Mr Maijoor believes that resolution authorities should have the discretion to select the resolution tool to apply in a given scenario from the widest possible list: it is better to have one extra tool in the authorities’ toolkit than one less. Where tools have a significant impact on the overall market, and CCP clearing members and their clients, additional safeguards and further scrutiny can be introduced before they used. Hence, the solution may not be simply eliminating them from the list of eligible tools. Mr Maijoor states that this is particularly the case for initial margin haircutting. Mr Maijoor is of the view that this tool should not be excluded a priori but seriously considered as a last-resort resolution tool after all other resolution tools have been exercised.

 View Steven Maijoor gives speech on CCP recovery and resolution, 24 June 2016