Central counterparty recovery and resolution: the European perspective

This paper contributes to the literature on the recovery and resolution of central coun- terparties (CCPs) by exploring the key components of the recent European legislative proposal on the recovery and resolution of CCPs, its main differences with the bank recovery and resolution directive, and its main underlying policy options. To our knowledge, it is one of the first papers to provide a detailed analysis of the proposed European framework. Following the G20 commitments to reform over-the-counter derivatives markets, jurisdictions started requiring standardized transactions in these instruments to be cleared in CCPs, thereby making them even more systemic. In Europe, this commitment has been transposed by the European Market Infrastructure Regulation. The proposal constitutes the completion of this framework, ensuring that crises in CCPs can be addressed in an orderly manner. It is aligned with related international work, balancing predictability for CCPs and their participants with flexibility so that resolution authorities can use their powers when there is still certainty about the financial resources available. One of the key challenges ahead for authorities will be to operationalize and articulate the possible simultaneous resolution of global systemically important banks and CCPs, and to make resolution decisions effective on a cross-border basis. ;