Clearing Rules - consultation of rule book changes July 2022

The Clearing Rule Book, Regulation Liquidity Measures and Regulation Interoperability Fund have been updated. Updated versions of the Clearing Rule Book, Regulation Liquidity Measures and Regulation Interoperability Fund have been published on our website.

The purpose of the changes is to (1) reflect the requirements of Regulation (EU) No 2021/23 of 16 December 2020 on a framework for the recovery and resolution of central counterparties, as amended from time to time (“EU Regulation R&R”), and (2) allow EuroCCP to continue to give Clearing Participants the option of providing Deposits in cash to meet Interoperability Fund requirements by allowing EuroCCP to invest such cash in reverse repurchase transactions. The bonds resulting from these transactions will be pledged to Co-operating Clearing Houses, which have expressed a preference for bonds. 

The changes to the Clearing Rule Book are open for consultation pursuant to article 3.3 of the Clearing Rule Book. The 30 calendar day consultation period ends on the 2 August 2022. A summary of the changes can be found below.

The relevant provisions are expected to apply shortly after the end of the consultation period. Clearing Participants will be advised of the outcome of the consultation by newsflash following the consultation period.

 All changes are subject to regulatory review.

 Summary changes Clearing Rule Book:

 Recovery & Resolution

 a.      The definition of “Bail-in Action” has been added in order to reflect the requirements of EU Regulation R&R article 53.

b.      The definitions of “Clearing Fund Cash Call”, “Clearing Fund Cash Call Total” have been deleted and are being replaced by a Recovery CF Cash Call in article 16 of the Clearing Rule Book in order to reflect the requirements of EU Regulation R&R.

c.       The definition of “EU Regulation R&R” has been added.

d.      The definition of “Recovery CF Cash Call” has been added in order to reflect the requirements of EU Regulation R&R.

e.      The cross-reference in the definition of “Recovery Liquidity Cash Call” has been updated.

f.        The definition of “Recovery Plan” has been updated to refer to EU Regulation R&R.

g.      The definitions of “Resolution Action”, “Resolution Authority”, “Resolution CF Cash Call” and “Resolution Powers” have been added in order to reflect the requirements of EU Regulation R&R.

h.      The definition of “RLCC Securities” has been deleted as the corresponding article has been deleted.

i.        Article 8.6: has been deleted and replaced by the Recovery CF Cash Call in article 16 of the Clearing Rule Book in order to reflect the requirements of EU Regulation R&R article 9(14), which provides that a CCP shall use its additional dedicated own financial resources prior to obliging non-defaulting clearing members to make a contribution in cash to the CCP up to at least each clearing member’s contribution to the default fund.

j.        Article 9.1.2: has been amended to introduce the additional dedicated own financial resources of EuroCCP into the ‘waterfall’ in accordance with the requirements of EU Regulation R&R article 9(14) and reflect the replacement of the Clearing Fund Cash Call with the Recovery CF Cash Call.

k.      Article 11.4.1(k): has been moved from article 12.1.10 in order to keep together in the same article all measures in case of a Declaration of a Default and amended in order to (a) provide EuroCCP with the option of cash settling outstanding positions regardless of a Recovery Plan having been activated and (b) provide greater clarity on the basis of which price such cash settlement will be performed. 

l.        Article 11.4.1(r): has been added as a measure in case of a Declaration of a Default in order permit EuroCCP to, upon activation of the Recovery Plan, invoke the recovery measures set out in the Clearing Rule Book article 16.

m.    Article 12.1.10: has been moved to article 11.4.1(k) and amended (as per point k above).

n.      Article 14.2: has been moved to article 16 and Regulation Liquidity Measures.

o.      Article 16.1: has been added in order to reflect the requirements of EU Regulation R&R and Annex A, paragraph 15 (vi) and (viii), which requires a CCP to include in its recovery plan the ability to partially or fully terminate contracts and to oblige non-defaulting clearing members to make a contribution in cash to the CCP up to at least each clearing member’s contribution to the default fund.

p.      Article 16.2: has been added in order to give EuroCCP full discretion in determining which of the recovery measures it shall apply.

q.      Article 16.3: has been added in order to reflect the requirements of EU Regulation R&R article 9(6), which requires a CCP to include provisions in their operating rules outlining the procedures to be followed by them where, in order to achieve the goals of the recovery process, they propose to: (a) take measures provided for in their recovery plan despite the fact that the relevant indicators have not been met; or (b) refrain from taking measures provided for in their recovery plan despite the fact that the relevant indicators have been met.

r.       Article 17.1: has been added in order to reflect the requirements of EU Regulation R&R article 30(6), which requires a CCP to include in its operating rules reference to the power of a resolution authority to reduce payment obligations referred to in EU Regulation R&R article 30(1).

s.       Article 17.2: has been added in order to reflect the requirements of EU Regulation R&R article 31(1), which requires a CCP to include in its rules and other contractual arrangements a resolution cash call reserved to the resolution authority, pursuant to which it may require non-defaulting clearing members to make a contribution in cash to the CCP up to twice the amount equivalent to their contribution to the CCP’s default fund. 

t.       Article 17.3: has been added in order to reflect the requirements of EU Regulation R&R article 27(5), which requires a CCP to include in its rules and other contractual arrangements a resolution authority’s right to, in the event it refrains partially or fully from enforcing existing and outstanding obligations as set out in the second subparagraph of paragraph 3 or in paragraph 4 of EU Regulation R&R article 27, enforce the remaining obligations within 18 months after the CCP is considered to be failing or likely to fail in accordance with EU Regulation R&R article 22, provided that the reasons for refraining from enforcing those obligations no longer exist.

u.      Article 17.4: has been added in order to reflect the requirements of EU Regulation R&R article 53(2), which require a CCP to ensure the inclusion of a provision in its contracts and other agreements with clearing members by which they agree to be bound by any action in respect of their assets, contracts, rights, obligations and liabilities taken by the resolution authority, including the application of EU Regulation R&R articles 28 (position and loss allocation tools), 32 (write-down and conversion tools), 55 (suspension of payment or delivery obligations), 56 (power to restrict enforcement of security interests) and 57 (power to temporarily suspend termination rights).

v.      Appendix 1: has been amended to refer also to article 16, which now contains the recovery related liquidity measures.

Interoperability Fund

 w.     The definition of “Collateral Account” has been amended to include the Settlement Exposure Add-on Collateral Account and Settlement Prefunding Requirement Collateral Account to more accurately reflect the use of the definition. With this, the definitions of “Settlement Exposure Add-on Collateral Account” and “Settlement Prefunding Requirement Collateral Account” and article 5.2.4, which sets out on what basis EuroCCP shall open such accounts, have been added.

x.       Article 5.2.5: has been amended to clarify that the article pertains to Position Accounts.

y.      Article 7.1.2: has been amended to allow EuroCCP to invest the assets of the Interoperability Fund in accordance with the Regulation Investment Policy.

z.       Article 7.2.6: has been amended to clarify that cash Deposit amounts not invested by EuroCCP in accordance with the Regulation Investment Policy remain subject to the current agreement, which provides that the risk that the Deposits are not available to EuroCCP or will not be recovered is the risk of the Clearing Participant. However, losses on cash Deposit amounts invested by EuroCCP in accordance with the Regulation Investment Policy shall be treated as Investment Losses in accordance with article 10. The option to give notice pursuant to this article by fax has been deleted.

aa.   Article 7.2.8: has been deleted. Changes to Regulation Interoperability Fund are governed by the more general provision article 3 on changing the Clearing Rule Book and Regulations.

bb.  Article 10.1.2: has been amended to clarify the allocation of Investment Losses related to investments of cash Collateral.

cc.    Article 10.1.3: has been added to clarify the allocation of Investment Losses related to investments of cash Deposits.

dd.  Article 10.1.4: has been added to clarify the allocation of Investment Losses related to investments of cash Contributions.

ee.   Article 10.1.5 and 10.1.6: have been amended to reflect the fact that Investment Losses may arise from investments of cash Collateral, Deposits or Contributions.

Summary changes Regulation Liquidity Measures:

ff.      Article 5: sections from article 14 Clearing Rule Book have been reinserted (as per point n above).

Summary changes Regulation Interoperability Fund:

gg.   Article 3: has been amended to refer Clearing Participants to the document containing the relevant account information for the making of Deposits.

hh.  Article 5.1: has been amended to clarify in accordance with which article Deposits in the form of securities must be made.

ii.      Article 5.2: has been amended to clarify in accordance with which article Deposits in the form of cash must be made and to allow EuroCCP to invest cash Deposits in accordance with the Regulation Investment Policy.

jj.      Article 6: the legibility of article 6 on deposits and withdrawals has been improved.

Should you wish to take part in the consultation process or have questions relating to these changes, please contact the Legal and Compliance Department at [email protected].

Should you have any further queries, please do not hesitate to contact your Relationship Manager.