Article 46 of Regulation (EU) No 648/2012 requires CCPs to accept highly liquid collateral with minimal credit and market risk to cover its initial and ongoing exposure to its clearing members. Article 37 of Commission Delegated Regulation (EU) 153/2013 requires CCPs to monitor on a regular basis the adequacy of their collateral policies and procedures, as new market developments may require changes.

a) What types of market developments should CCPs monitor?
b) How can CCPs ensure the monitoring of these market developments is efficient?

Pursuant to Guideline and Recommendation 3(b)(v) of the ESMA Guidelines and Recommendations for establishing consistent, efficient and effective assessments of interoperability arrangements, interoperable CCPs are not allowed to contribute to each other’s default funds or other financial resources (as such are defined in Article 43 of EMIR). However, Guideline and Recommendation 3(b)(iii) provides that CCPs should assess, collect or have access to, the required inter-CCP resources necessary to cover credit and liquidity risk arising from the interoperable arrangement, including in extreme but plausible market conditions.

How should a CCP meet Guideline and Recommendation 3(b)(iii) in the absence of requiring the interoperable CCPs to contribute to its default fund or other financial resources given that a CCP’s default fund and other financial resources (as opposed to the margins it collects) are the means through which the CCP ensures that its financial resources are sufficient to cover extreme but plausible market conditions?

Pursuant to Article 28(1) of EMIR, a CCP shall establish a risk committee, which shall be composed of representatives of its clearing members, independent members of the board, and representatives of its clients. Employees of the CCP, external independent experts and employees of competent authorities may attend in a non-voting capacity. None of the groups of representatives shall have a majority in the risk committee.

a) Is it possible for representatives of other interests (for example trading venues served by the CCP) to be members of the risk committee?
b) How broadly must an individual represent the interests of the CCP’s clients in order to qualify as a representative of such clients on the risk committee?

Do the obligations on CCPs and their clearing members under Title IV of EMIR apply in respect of clearing members which are exempt entities under Articles 1(4) and (5) of EMIR?

(a) Can a CCP have provisions in their rules under which the CCP can reduce pro-rata the amount of variation margin it is due to pay clearing members with a positive change in their positions in order to cover losses resulting from the default of another clearing member (variation margin haircutting) where:

1. The variation margin reduction is limited to a pre-defined monetary amount (e.g. an assessment of up to EUR XX million per clearing member)?
2. The variation margin reduction is limited to an amount which is relative to the exposure that the clearing member brings to the CCP (e.g. an assessment of up to X times the clearing member’s prefunded default fund contribution)?
3. There is no pre-defined monetary or relative limit on the size of the variation margin reduction?

b) Can a CCP have provisions in their rules under which the CCP can use margins posted by a non-defaulting clearing member to cover a liquidity shortfall resulting from the default of a clearing member?