The Danish central bank, Danmarks Nationalbank, has passed a rule that allows CCPs offering clearing services in Danish kroner to become monetary policy counterparties (MPCs). This gives the CCPs access to monetary policy facilities and instruments under the same terms as existing MPCs, enabling them to more effectively manage their collateral.
Danmarks Nationalbank notes in a press release that this decision is “consistent with actions taken by other central banks, which have also granted CCPs access to monetary policy instruments”.
Several regulatory reforms in recent years, such as the US Treasury clearing mandate and the European Market Infrastructure Regulation (EMIR 3.0) have been driving the industry towards clearing more transactions through CCPs.
Pillars of support
As MPCs, “CCPs will have a backstop for placements of their krone liquidity. Such a backstop will protect against the potentially amplifying effects of CCP placements on krone money markets, thereby enhancing both day-to-day resilience and stability in times of turbulence”, the press release explains.
Just like other MPCs, these CCPs will be incentivised to “place their krone liquidity into money markets when market rates exceed the current account rate”. As MPCs, CCPs will share the responsibility of supporting money market functioning by redistributing liquidity.
Only CCPs active in clearing transactions denominated in Danish kroner are eligible to become MPCs. Interested CCPs should obtain a TARGET DKK account and meet specific technical and operational requirements. Applicants will be assessed by Danmarks Nationalbank for their significance in markets considered to be material to the transmission of monetary policy.
