On 1 February 2019, the European Systemic Risk Board (ESRB) published a report on interoperability arrangements between central counterparties (CCPs). A previous report published by the ESRB in 2016 concluded that, although interoperability arrangements provide clearing members with increased opportunities for netting and lead to a reduction in outstanding gross exposures in the system, they are also believed to introduce complexity into the risk management of linked CCPs and to add a direct channel of contagion between CCPs.
The 2019 report expands on the previous ESRB report on interoperability arrangements by developing three main topics, it:
- updates and enhances the analysis of existing arrangements in Europe;
- analyses the additional complexities of interoperability arrangements for derivative; and
- provides a high-level analysis of the impact of the legislative proposal for a recovery and resolution framework for CCPs on existing and future interoperability arrangements.
The ESRB sees a need to clarify the treatment of interoperability arrangements in the upcoming CCP recovery and resolution framework. Following the publication by co-legislators of a draft proposal for a regulatory framework for the recovery and resolution of CCPs, the ERSB notes that the final legislative framework should clarify how recovery and resolution tools would be applied to interoperable CCPs, including recognised third-country CCPs. In addition, the ESRB suggests clarifying in EMIR whether interoperability arrangements for derivatives could be approved and implemented and, if so, for which product types and under what conditions.