Does a CCP have to hold capital for market risk on their investments?

In particular, market risk is required to be calculated on a CRD basis under Commission Delegated Regulation (EU) No 152/2013, and under that approach, assets may be treated as being held for the banking book rather than the trading book. For banking book assets, CRD only requires CCPs to hold capital against credit risk and not market risk.

(a) What constitutes an activity or service covered by the initial authorisation of a CCP as referred to in Article 15(1) of EMIR?

(b) By when must a CCP be fully compliant with EMIR?

(c) Can the clock be stopped on application deadlines when an NCA is waiting for further information from the CCP? Can the CCP continue operating under the national regime until a final decision has been made on its authorisation under EMIR?

(d) What services and activities can a CCP be authorised under EMIR to provide or perform?

(e) Is a CCP required to comply with all of the requirements laid down in EMIR for all of the services that it provides and activities that it performs?

(f) Can a CCP be authorised to provide a service that prevents its clearing members to clear contracts between each other?

Article 47(3) of EMIR states that financial instruments posted as margins or as default fund contributions, shall, where available, be deposited with operators of securities settlement systems that ensure the full protection of those financial instruments. Alternatively, other highly secure arrangements with authorised financial institutions may be used.

(a) Can a CCP deposit all financial instruments posted as margins or as default fund contributions in an account with a CSD through a custodian? The financial instruments would be deposited with a custodian who then registers them at the CSD in the name of a nominee of the custodian. Is this practice compatible with EMIR provisions?

(b) When can a security settlement system be considered unavailable for the purpose of Article 47(3) of EMIR?

(c) Can the term ‘where available’ be construed such that a securities settlement system would not be considered available where it does not offer to keep separate records and accounts enabling a CCP to distinguish, in accounts with the operators of the securities settlement system, the assets and positions held for the account of a client?

(d) Are the requirements of Article 47(3) of EMIR fulfilled where a CCP deposits financial instruments with CSDs (including ICSDs) that in turn deposit the instruments with other institutions via CSD links?

(e) Can a CCP outsource certain operational aspects of the accounts that the CCP holds (in its own name) at a securities settlement system?

(f) Do the requirements of Article 47(3) of EMIR apply only to financial instruments posted as margins or, default fund contributions, or also to financial instruments in which the CCP has invested, i.e. where margin or default fund contributions posted to the CCP in the form of cash are reinvested by the CCP in financial instruments?

(a) What is the requirement on a CCP for portability of client assets in a member default scenario –for both individual and omnibus accounts?

1. Port the “required collateral” only, less outstanding variation margin payments i.e. the value of assets used to cover liabilities; or
2. Port the assigned value of the assets, less outstanding variation margin payments (post-haircut); or
3. Port the proceeds from liquidation of assets, less outstanding variation margin payments; or
4. Port the assets themselves, less outstanding variation margin payments?

(b) Articles 48(5) and 48(6) of EMIR provide that, if a clearing member defaults, “the CCP shall, at least, contractually commit itself to trigger the procedures for the transfer of the assets and positions… to another clearing member designated by [the client or clients]…”. They further provide that if porting of client positions “has not taken place for any reason within a predefined transfer period specified in its operating rules, the CCP may take all steps permitted by its rules to actively manage its risk in relation to those positions, including liquidating the assets and positions held by the defaulting clearing member for the account of its clients”.

How long should the predefined transfer period be, and can a CCP liquidate the client(s’) position(s) and assets before the end of the predefined transfer period if it deems that necessary for risk management purposes?

(c) Can a CCP require the client(s) to designate a back-up clearing member prior to the default of its primary clearing member as a precondition for triggering the procedure for porting in the event of the default of the primary clearing member?

(d) Article 48 of EMIR permits a CCP to liquidate the house positions of a defaulting clearing member and any client positions of that defaulting clearing member that the CCP has not been able to transfer to another clearing member.

i) Is it permissible for the CCP to actively manage its risk in relation to the positions held in more than one account by one or more transactions, rather than being required to execute transactions to manage the risks of the positions held in each account separately?

ii) If it is acceptable for the CCP to execute one or more transactions to manage its risks across more than one account, how should the costs of the transactions be allocated between the affected accounts?

(a) What is the requirement on a CCP for portability of client assets in a member default scenario –for both individual and omnibus accounts?

1. Port the “required collateral” only, less outstanding variation margin payments i.e. the value of assets used to cover liabilities; or
2. Port the assigned value of the assets, less outstanding variation margin payments (post-haircut); or
3. Port the proceeds from liquidation of assets, less outstanding variation margin payments; or
4. Port the assets themselves, less outstanding variation margin payments?

(b) Articles 48(5) and 48(6) of EMIR provide that, if a clearing member defaults, “the CCP shall, at least, contractually commit itself to trigger the procedures for the transfer of the assets and positions… to another clearing member designated by [the client or clients]…”. They further provide that if porting of client positions “has not taken place for any reason within a predefined transfer period specified in its operating rules, the CCP may take all steps permitted by its rules to actively manage its risk in relation to those positions, including liquidating the assets and positions held by the defaulting clearing member for the account of its clients”.

How long should the predefined transfer period be, and can a CCP liquidate the client(s’) position(s) and assets before the end of the predefined transfer period if it deems that necessary for risk management purposes?

(c) Can a CCP require the client(s) to designate a back-up clearing member prior to the default of its primary clearing member as a precondition for triggering the procedure for porting in the event of the default of the primary clearing member?

(d) Article 48 of EMIR permits a CCP to liquidate the house positions of a defaulting clearing member and any client positions of that defaulting clearing member that the CCP has not been able to transfer to another clearing member.

i) Is it permissible for the CCP to actively manage its risk in relation to the positions held in more than one account by one or more transactions, rather than being required to execute transactions to manage the risks of the positions held in each account separately?

ii) If it is acceptable for the CCP to execute one or more transactions to manage its risks across more than one account, how should the costs of the transactions be allocated between the affected accounts?