Resolution authorities shall take resolution actions referred to in Article 21 of the CCPRRR by applying any of the following resolution tools individually or in any combination:
- the position and loss allocation tools – can be applied in respect of contracts relating to clearing services and the collateral related to those services posted to the CCP. Types:
- termination of contracts – partial or full (position tear-up & re-matching),
- reduction of the value of any gains payable by the CCP to non-defaulting clearing members (variation margin gains haircuts),
- resolution cash call;
- the write-down and conversion tool;
- the sale of business tool;
- the bridge CCP tool.
Position tear-up & Re-matching
Aim: rematch the book of the CCP or bridge CCP where relevant.
The resolution authority may terminate some or all of the following contracts of the CCP under resolution:
- the contracts with the clearing member in default;
- the contracts of the affected clearing service or asset class;
- the other contracts of the CCP under resolution.
The resolution authority shall terminate the contracts only where the transfer of the assets and positions resulting from those contracts has not taken place within the meaning of Article 48(5) and (6) of EMIR.
Prior to the termination of any of the contracts, the resolution authority shall take the following steps:
- require the CCP under resolution to value each contract, and update the account balances of each clearing member;
- determine the net amount payable by or to each clearing member, taking account of any due but unpaid variation margin, including variation margin due as a result of the contract valuations; and
- notify each clearing member of the determined net amounts and require the CCP to pay or collect them accordingly.
Variation Margin Gains Haircuts
The resolution authority may reduce the amount of the CCP’s payment obligations to non-defaulting clearing members where those obligations arise from gains due in accordance with the CCP’s processes for paying variation margin or a payment that has the same economic effect.
The resolution authority shall calculate any reduction in payment obligations using an equitable allocation mechanism determined in the valuation.
The total net gains to be reduced for each clearing member shall be proportional to the amounts due from the CCP.
Non-defaulting clearing member shall not have any claim in any subsequent proceedings against the CCP, or its successor entity, arising from the reduction in payment obligations.
Resolution cash call
The resolution authority 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.
If a non-defaulting clearing member does not pay the required amount, the resolution authority may require the CCP to place that clearing member in default and use its initial margin and default fund contribution up to the required amount.
Write-down and conversion of instruments of ownership and debt instruments or other unsecured liabilities
The resolution authority shall apply the write-down and conversion tool in respect of instruments of ownership and debt instruments issued by the CCP under resolution or other unsecured liabilities in order to:
- absorb losses,
- recapitalise that CCP or a bridge CCP, or
- to support the application of the sale of business tool.
Based on the valuation the resolution authority shall determine the following:
- the amount by which the instruments of ownership and debt instruments or other unsecured liabilities must be written down taking into account any losses that are to be absorbed by the enforcement of any outstanding obligations of the clearing members or other third parties owed to the CCP; and
- the amount by which debt instruments or other unsecured liabilities must be converted into instruments of ownership in order to restore the capital requirements of the CCP or the bridge CCP.
The resolution authority shall apply the write-down and conversion tool in accordance with the priority of claims applicable under normal insolvency proceedings.
Sale of business
The resolution authority may transfer the following to a purchaser that is not a bridge CCP:
- instruments of ownership issued by a CCP under resolution;
- any assets, rights, obligations or liabilities of a CCP under resolution.
The transfer referred to in the first subparagraph shall take place without obtaining the consent of the shareholders of the CCP, or any third party other than the purchaser and without complying with any procedural requirements under company or securities law.
Any transfer made shall take place irrespective of whether the purchaser is authorised to provide the services and carry out the activities resulting from the acquisition.
For the purposes of exercising its right to provide services, the purchaser shall be considered to be a continuation of the CCP under resolution, and may continue to exercise any such right that was exercised by the CCP under resolution in respect of the assets, rights, obligations or liabilities transferred.
Where applying the sale of business tool in relation to a CCP, the resolution authority shall advertise the availability, or make arrangements for the marketing, of the assets, rights, obligations, liabilities, or the instruments of ownership intended to be transferred.
Bridge CCP tool
The resolution authority may transfer to a bridge CCP the following:
- instruments of ownership issued by a CCP under resolution;
- any assets, rights, obligations or liabilities of the CCP under resolution.
The bridge CCP shall be a legal person that:
- is controlled by the resolution authority and is wholly or partially owned by one or more public authorities which may include the resolution authority;
- is established or used for the purpose of receiving and holding some or all of the instruments of ownership issued by a CCP under resolution or some or all of the assets, rights, obligations and liabilities of the CCP with a view to maintaining the critical functions of the CCP and subsequently selling the CCP.
For the purposes of exercising its right to provide services, a bridge CCP shall be considered to be a continuation of the CCP under resolution and may continue to exercise any such right that was exercised by the CCP under resolution in respect of the assets, rights, obligations or liabilities transferred.
The bridge CCP shall not be prevented from exercising the CCP’s rights of membership and accessing payment and settlement systems and other linked FMIs and trading venues, provided that it meets the criteria for membership and participation in those systems or FMIs or trading venues.
