On 5 June 2019, the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) jointly published a discussion paper on central counterparty (CCP) default management auctions.
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, thereby restoring the CCP to a matched book. In contrast to other default management tools that a CCP may use, such as sale on an exchange (for listed products) or a negotiated bilateral sale (for standardised over-the-counter (OTC) products), auctions require active involvement of a group of auction participants and may impose operational strains on the auction participants.
The discussion paper focuses on five key aspects of a CCP’s default management auctions, namely:
- roles and responsibilities in default management auctions;
- considerations for a successful default management auctions;
- operational considerations;
- client participation; and
- default of a common participant across multiple CCPs.
The discussion paper aims to facilitate the sharing of existing practices and views on default management auctions, and to foster dialogue on the key concepts, processes and operational aspects used by CCPs in planning and executing effective default management auctions. Additionally, the discussion paper identifies certain considerations that may be useful for CCPs to take into account when planning for auctions.
The deadline for responses to the discussion paper is 9 August 2019.