Global Regulators Publish Discussion Paper on Central Counterparty Practices to Address Non-Default Losses

Shearman & Sterling LLP

Shearman & Sterling LLP

The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions have published a discussion paper on the practices that central counterparties use to manage losses arising from non-default events, e.g., operational risk, investment risk, custody risk and legal risk.

The existing CMPI/IOSCO Principles for Financial Market Infrastructures and related Recovery Guidance already provide significant guidance for CCPs on the management of losses related to defaults, but CCPs' approaches to managing non-default losses have been subject to fewer and less detailed measures or standards. The discussion paper provides an overview of current NDL principles and practices and poses a series of questions for interested parties (which may include CCPs, clearing members, their clients and other market participants) to develop an understanding of the challenges in this area and the most effective ways that CCPs currently manage NDLs. The discussion paper is not designed to create additional standards over and above those already in the PFMI, but rather to share best practices and identify opportunities to help improve CCPs' planning for management of NDLs.
Responses to the discussion paper should be submitted by October 4, 2022.

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