Central Counterparties (CCPs) interpose themselves between counterparties to contracts traded, becoming the buyer to every seller and the seller to every buyer.
The growing systemic importance of CCPs and their inter-linkages to the financial system as a whole underline the critical nature of CCPs established in the Union and abroad for the financial stability of the Union. A default or disruption at a CCP can have substantial destabilizing effects on linked clearing members, their clients or on other financial market infrastructures (FMIs) established in one or more Member States and impair critical markets for the proper conduct of monetary policy in Union currencies.
The soundness and robustness of CCPs is therefore at the heart of ESMA’s mission to safeguarding financial stability in the Union and promoting stable and orderly financial markets.
The European Markets Infrastructure Regulation (EMIR) introduced a harmonised set of organisational, business conduct and prudential requirements for clearing service providers. Its subsequent reviews have continuously enhanced the regulatory and supervisory arrangements for CCPs to mitigate the negative systemic effects, potentially EU-wide of such disruption. This framework was recently complemented by the CCP Recovery and Resolution Regulation (CCP RRR) to ensure the continuity of critical clearing services in the remote case of a CCP failure.
ESMA’s policy role in this respect is that of a standard-setter who further clarifies the CCP provisions under EMIR and CCP RRR. ESMA may review at all times existing CCP related requirements falling under its purview to address new developments requiring regulatory intervention.
In fulfilling this role under EMIR, ESMA has issued:
Regulatory/Implementing technical standards for CCPs
- Review on the efficiency of margining requirements to limit procyclicality
- Review on the segregation and portability requirements
- ESMA input as part of the Commission consultation on the EMIR Review
- Possible systemic risk and cost implications of interoperability arrangements
For a more complete view of the regulatory standards and supervisory convergence guidance developed by ESMA and the European Commission, please consult the Interactive Single Rulebook (ISRB) on EMIR.
CCP Recovery and Resolution
The CCP Recovery and Resolution Regulation (CCP RRR) came into force in February 2021. The CCP RRR contains 19 empowerments to ESMA, to develop RTS and Guidelines. According to CCP RRR, 15 of those mandates are to be delivered within 12 months after the date of entry into force of the CCP RRR and four mandates are to be delivered within 18-24 months after the date of entry into force of the CCP RRR.
Recovery related mandates under CCPRRR
- Guidelines on CCP recovery plan scenarios (Article 9(12))
- Guidelines on CCP recovery plan indicators (Article 9(5))
- RTS on factors for assessing CCP recovery plans (Article 10(12))
- Guidelines on triggers for the use of early intervention measures (Article 18(8))
- Guidelines on circumstances for temporary restrictions in the case of a significant non-default event (Article 87(8) CCPRRR - Article 45a(3) EMIR)
- RTS on the methodology for calculation and maintenance of the additional amount of pre-funded dedicated own resources (Article 9(15))
- RTS on order of compensation (Article 20(2))
Resolution related mandates under CCPRRR
- RTS on resolution colleges (Article 4 of the CCPRRR)
- RTS on the content of CCP resolution plans (Article 12(9) of the CCPRRR)
- Guidelines on the application of the circumstances under which a CCP is deemed to be failing or likely to fail (Article 22(4) of the CCPRRR);
- RTS on the valuation of CCPs assets and liabilities in resolution (Articles 25(6), 26(4) and 61(5) of the CCPRRR);
- Guidelines for the methodology to value each contract prior to termination (Article 29(7) of the CCPRRR);
- RTS on safeguards for clients and indirect clients (Article 63(2) of the CCPRRR).
ESMA is also progressing on the remaining four mandates under CCPRRR, with the priority to the Guidelines on international cooperation arrangements with third country authorities.
ESMA is in the process of establishing the ESMA Resolution Committee as per Article 5 of the CCP RRR, pursuant to Article 41 of ESMA Regulation.