CCPs need to have ”adequate resources and appropriate tools to address non-default losses (NDLs)”. This is the overarching message of an updated report jointly produced by the Bank for International Settlements’ (BIS) Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO). If not properly managed, NDLs have the potential to “threaten a CCP’s viability”.
The report points out that “while the potential for losses arising from clearing member defaults is well understood, there is limited common understanding of how CCPs manage and address NDLs”. With this in mind, CPMI and IOSCO have taken into account relevant comments and updated the paper, which was first published in August 2022, with “a more thorough description of current practices that CCPs employ to address NDLs”.
CPMI and IOSCO emphasise that the paper is not meant to “create additional standards for CCPs or other financial market infrastructures (FMIs), nor does it provide guidance on existing standards”. Instead, it aims to facilitate the sharing and understanding of practices employed by CCPs to address NDLs, and to help authorities identify where improvements “might be helpful”.