This standardised guidance note has been prepared as EACH believes that presenting default procedures in a standard format across all member CCPs will serve to make procedures as transparent as possible for the benefit of all market participants.
EACH supports the ESCB-CESR Recommendation with regards to disclosure of Default Procedures, noting that:
· Transparency of procedures provides certainty and predictability for market participants;
· Where procedures are fully understood, this facilitates an orderly process in the event of a default; and
· Where members understand default procedures, they can make a fully-informed assessment of the risk associated with a market and, as such, their desire to participate.
Furthermore, EACH believes that presenting default procedures in a standard format across all member CCPs will serve to make procedures as transparent as possible for the benefit of all market participants (CCP members, Settlement Agents, Clients (i.e. End-Clients), etc.). As such, this standardised guidance note has been prepared.
This note, the Default Procedure Publication Guideline, provides details of the points which EACH believes should be covered by a Disclosure Document. EACH is well aware that on one hand transparency of default procedures is important as it provides certainty and predictability to market participants, facilitates orderly handling in case of an actual default, enables market participants to make an informed assessment about markets, and on the other hand that at the same time every default is different in many aspects from the preceding ones and some degree of flexibility in managing the default is desirable and probably necessary.
EACH wishes to clarify that the Default Procedure Publication Guideline does not take into consideration the event of default of a Linked CCP. As a matter of fact each link or interoperability arrangement is different and has unique characteristics and such a default – although possible in principle – appears to be very remote and would have different systemic implications in comparison to the default of a Clearing Member; therefore it does not appear appropriate to examine the consequences of the default of a Linked CCP in the same framework of the much more realistic event of a Member‟s default.
EACH also wishes to clarify that Disclosure Documents will be for general information purposes only, and will be non binding in nature. A clear statement that governing laws and CCP rules and regulations will prevail over and above any Disclosure Document should be included for the avoidance of doubt.
© EACH - European Association of Central Counterparty Clearing Houses
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