The European Securities and Markets Authority (ESMA) has published its first CCP resolution briefing, zeroing in on the mechanics of the so-called cash call, a tool available to authorities when a central counterparty (CCP) is under stress and existing recovery tools have been exhausted.
The paper, drawn up by ESMA’s CCP Resolution Committee, outlines a methodology to help National Resolution Authorities (NRAs) incorporate the cash call into their CCP resolution plans. With this, ESMA aims to promote greater consistency across jurisdictions when it comes to one of the more operationally complex parts of resolution planning.
To determine the potential size and effectiveness of a cash call, NRAs are expected to define what data CCPs must collect. This includes looking at clearing members’ exposures and available liquidity, as well as assessing the knock-on effects on wider market infrastructure.
Once calibrated, NRAs should ensure the procedures for carrying out a cash call are operational and tested. ESMA recommends regular dry runs to make sure the process works in practice, not just on paper.
Bigger resolution toolkit
The cash call is one of several tools available under the EU’s CCP Recovery and Resolution Regulation (CCPRRR), intended as a last resort if financial resources at the CCP fall short. The new briefing gives authorities a concrete starting point for making this tool usable, rather than theoretical.
By encouraging NRAs to align their approaches, ESMA wants to reduce fragmentation in how resolution is handled across the EU, a key consideration in cross-border crisis scenarios.
More to come
The cash call briefing is the first in what ESMA says will be a series of publications designed to support authorities in strengthening their CCP resolution planning. With growing attention on systemic risk and the critical role of CCPs in market infrastructure, the operational readiness of resolution tools is firmly under the spotlight.
