Central Counterparties (CCPs) are a further core part of the Regulation. The CCP, as central contractual partner assumes the risk of default and guarantees the fulfilment of the transaction. To be able to guarantee transactions, CCPs demand that collateral is deposited by their members for contracts that they enter into. However, the insolvency of one or more members of a CCP can also lead to the available collateral not being sufficient to guarantee any obligations arising from the termination of contracts of members that are unable to pay. In order, in such a case to maintain the capacity to pay of central parties, CCPs are required under EMIR to set up a default fund, into which the participants of clearing are required to pay in mandatory contributions. In the event that these funds also do not suffice, then the losses must be split between all solvent members, or the CCP as the final instance pursuant to the requirements in EMEIR must have adequate own funds available.
CCPS are directly supervised by the respective national competent authorities. Under EMIR, every CCP is required to have an authorisation by the national supervisory authorities in the Member State in which an institution is established. Strict authorisation requirements apply for CCPs. According a CCP should have access to central bank funds, credit lines at commercial banks, or a combination of both. In addition a CCP is expected to constantly hold available separate own funds of at least EUR 7.5 million. The members of a CCP are required to set aside highly liquid “assets” (margins) at the CCP. The amount and type of the margin is determined by models that are approved by the national supervisory authority. The establishment of the abovementioned default fund is also a requirement for authorisation. In addition CCPs are expected to have sufficient own funds, in order to withstand a stress scenario under which the two largest members of the CCP both default. During the authorisation process of a CCP the national competent authority must conduct a risk assessment of the CCP, establish an international supervisory college and chair it, as well as checking that all requirements under EMIR are satisfied. The results of the risk analysis are discussed in the college and a decision on authorisation taken jointly.
All important topics relating to the ongoing supervision of a CCP are always addressed with the supervision college.
European Market Infrastructure Regulation, EMIR