(a) Articles 42(2), 42(3) and 43(2) of EMIR require each CCP to hold financial resources including a default fund sufficient in size to cover losses arising from the default of the two largest members. However the CCP has the right in a default to transfer the positions of clients with porting arrangements to other clearing members. For the purposes of calculating the size of its default fund(s) and members’ contributions, can a CCP exclude those client positions that are held in segregated and portable accounts?

(b) Article 30 of Commission Delegated Regulation (EU) No 153/2013 requires that “when implementing an internal policy framework for defining the types of extreme but plausible market conditions thatcould expose the CCP to greatest risk, a CCP shall specify (for each market to which a CCP is exposed in a clearing member default scenario) extreme but plausible conditions based at least on… (a) a range of historical scenarios… that would have exposed the CCP to greatest financial risk; and (b) a range of potential future scenarios… drawing on both quantitative and qualitative assessments of potential market conditions”.
1. Is a CCP required to exactly replicate actual historical events in order to satisfy the requirement to use a range of historical scenarios or can a CCP use only quantitative and qualitative scenarios which are generated based on statistics derived from historical price changes?
2. When replicating actual historical events is a CCP required to exactly replicate actual historical price changes in all cleared instruments or can a CCP approximate prices moves based on similar instruments or market indices?

(a) What is the possible duration of the “highly secured arrangements” to be used for maintaining cash other than with a central bank?
(b) Article 45 (1) of Commission Delegated Regulation (EU) No 153/2013 (‘Highly secured arrangements maintaining cash’) states that if cash is not deposited with a central bank then it must be deposited with “an authorised credit institution as defined under Directive 2006/48/EC...” or with “a third country financial that is subject to and complies with prudential rules considered by the competent authorities to be at least as stringent...”. Article 45(2) of Commission Delegated Regulation (EU) No 153/2013 states that “not less than 95% of such cash” shall be deposited through “arrangements that ensure the collateralisation of the cash with highly liquid financial instruments...”. Is the counterparty to such a collateralisation arrangement required to be an entity which meets the criteria under Article 45(1) of Commission Delegated Regulation (EU) No 153/2013?
(c) Is it permissible for a CCP to refuse to indemnify (or exclude liability to) clearing members or clients against losses incurred due to the default of a central bank, authorised credit institution or equivalent third country financial institutions (in the case of cash), or the operator of a securities settlement system or authorised financial institution (in the case of the financial instruments) holding clearing member or client assets (or other CCP assets representing the reinvestment of such assets by the CCP)?

According to Article 11(1) of Commission Delegated Regulation (EU) No 153/2013 ‘a CCP shall establish and maintain an internal audit function which is separate and independent from the other functions and activities …’. Is it allowed by the CCP to outsource an internal audit function according to Article 35 of EMIR?

(a) Under a cross-margining arrangement, two (or potentially more) CCPs set margin requirements
on the basis of the portfolio of positions that a clearing member holds across the two CCPs. Is this approach consistent with the requirements of EMIR and the associated Commission Delegated Regulations?

(b) Article 24(1) of Commission Delegated Regulation (EU) No 153/2013 establishes the confidence intervals that a CCP shall at least respect in calculating the initial margins, over the time period defined in Article 25 of Commission Delegated Regulation (EU) No 153/2013 and assuming a time horizon for the liquidation of the position as defined in Article 26. Is the CCP obliged to respect the same confidence intervals if, for the purpose of margin calculations, it uses different time horizons, in addition to those prescribed in Articles 25 and 26 of Commission Delegated Regulation (EU) No 153/2013?

Article 39(3) of EMIR states that: “A CCP shall offer to keep separate records and accounts enabling each clearing member to distinguish in accounts with the CCP the assets and positions held for the account of a client from those held for the account of other clients (‘individual client segregation’)”. Article 39(10) of EMIR states that “Assets refer to collateral held to cover positions and include the right to the transfer of assets equivalent to that collateral or the proceeds of the realisation of any collateral...”.

(a) Under Article 39(6) of EMIR, what is the definition of client requirement and excess margin? Will clearing members be obliged to post this margin directly at the CCP? Additionally, how should a clearing member allocate excess margin over various CCPs it is linked to?

(b) Does EMIR allow CCPs to offer unsegregated accounts in which the assets and positions of clearing members are not segregated from those held for the accounts of the clearing member's clients?

(c) At what time do clearing members have to comply with requirements on segregation and portability under Article 39 of EMIR?

(d) May a CCP meet the requirements of Article 39(3) of EMIR by identifying only the value of collateral due to a client; or is it necessary to identify the specific assets due to a client?

(e) Under Article 39(3) of EMIR, the requirement for individual segregation is a requirement that the CCP offer to keep separate records and accounts enabling each clearing member to distinguish in accounts with the CCP, the assets and positions held for the account of a client from those held for the account of other clients. Does individual client segregation require:

1. That assets be segregated at the level of the security settlement system (for financial instruments) or at the level of the central bank (for cash) or at the level of the authorised financial institution (where alternative highly secured arrangements are permitted)?
2. That payments associated with the positions of an individually segregated client (i.e. variation margin payments, premium payments, etc.) be recorded in the separate records and accounts maintained for the individually segregated client at the CCP?

(f) Article 39.9(c) of EMIR provides that assets covering the positions recorded in an account shall
not be exposed to losses connected to positions recorded in another account.

1.Can a CCP apply surpluses in a clearing member’s house account to an omnibus client
account or an individually segregated client account?
2. Can a CCP, with a clearing member’s permission, use the clearing member’s own assets
(i.e. assets that were not posted by a client of the clearing member) to support the registration of client trades?

(g) Are CCPs expected to allow each clearing member to operate more than one house or omnibus client account under Article 39 of EMIR?

(h) Are CCPs required to provide segregated accounts for indirect clients?

(i) Are non-EU clearing members of EU CCPs providing services to clients subject to the segregation requirements in Article 39?

(j) Are EU clearing members of non-EU CCPs required to comply with Article 39 when offering client clearing on non-EU CCPs?

(k) Under Article 39(6) of EMIR, are clearing members obliged to post excess margin directly at the CCP if the collateral provided by the client is not eligible at the CCP? What if the margins collected by clients are in the form of a bank guarantee in favour of the clearing member?

(l) Can a CCP have a provision in its rules and/or operating procedures under which the CCP can, if so requested by a clearing member, transfer the positions and assets held for the account of a defaulted client of that clearing member from the segregated account holding those positions and assets into the house account of the clearing member to facilitate the management of the client default by the clearing member?

(m) Can a participant of a trading venue which is also a clearing member of the relevant CCP deny its clients the protections established under Article 39 of EMIR where it executes trades on behalf of its clients and subsequently clears those trades with the relevant CCP?

(n) If a CCP automatically pays variation margins in respect of an individually segregated client account to the clearing member each day (auto repay), is the clearing member required to return the collateral to the client?