Dealing with financial market infrastructures under stress


In response to the financial crisis, authorities have given a greater role to financial market infrastructures (FMIs), and specifically to central counterparties (CCPs), without fully addressing the question of their resolvability. CCPs clear derivative trades for the largest international banks, which makes them systemic by their very nature. Since business continuity is of paramount importance, standard insolvency procedures are widely excluded as a feasible option. EU authorities are contemplating a proposal on the subject, but some crucial issues remain unresolved, such as the statute of CCPs, access to central bank liquidity, the role of resolution authorities, the application of the ‘no creditor worse off’ principle or the burden sharing in case of non-member default losses. Against this background, CEPS launched a new Task Force report, entitled “How to deal with the resolution of financial market infrastructures” October 19th, recommending that European rules on the subject should focus on facilitating coordination between supervisors and authorities around the globe. The report calls upon the authorities to exercise restraint before triggering action towards FMIs, and to ensure that they have sufficient time to put recovery or resolution requirements in place when necessary. The latter should allow that the loss allocation (‘waterfall’) process, especially in a CCP, can be completed over a ‘resolution weekend’, and that the default fund can be replenished.

This timely and authoritative report is the result of deliberations in a CEPS Task Force that examined the rules on resolution of banks and financial market infrastructures. The group is chaired by Thomas Huertas and composed of financial sector representatives, experts and officials. The full report is available for downloading at