EUROPE: ESCB and CESR consults on draft recommendations for central counterparties

Tuesday March 31 2009

The European System of Central Banks (ESCB) and the Committee of European Securities Regulators (CESR) have published a document entitled “Draft recommendations for central counterparties as amended for OTC derivatives” for public consultation, in the context of the joint work being undertaken by the ESCB and CESR in the field of securities clearing and settlement.

In view of the financial stability risks posed by the growing scale of over-the-counter (OTC) derivatives exposures, and in particular credit derivatives exposures, the ECOFIN Council emphasized the need to support appropriate initiatives to reduce those risks, notably by developing one or more European central counterparties (CCPs) to serve the OTC derivatives markets.

The ECOFIN council therefore mandated the ESCB and CESR to adapt the existing draft recommendations for CCPs to explicitly address the risks of OTC derivatives. The ESCB and CESR analysed a wide range of aspects relevant for the clearing of OTC derivatives in general and credit derivatives in particular. The ECSB/CESR working group studied the matter and analysed a wide range of aspects relevant for the clearing of OTC derivatives in general and of credit derivatives in particular, including issues related to access, the protection of non clearing participants, risk management requirements, challenges related to the handling of credit events for CDS, dispute resolutions, price transparency, various operational aspects, governance issues, and potential risks in links between CCPs.

The consultation features 15 draft recommendations for central counterparties including on laws and regulations governing CCPs, transparency issues and risk controls.

Click on the above link to download the consultation and details on submitting your responses.