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Central counterparty default management auctions – Issues for consideration

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CPMI Papers  |  No 192  |  25 June 2020 PDF full text (466kb)  |  32 pages Central counterparties (CCPs) have become increasingly critical components of the financial system in recent years, due in part to the introduction of mandatory clearing for standardised OTC derivatives in some jurisdictions. Consistent with the key responsibility of guaranteeing the fulfilment of transactions to their clearing participants, CCPs play an important role in mitigating contagion in the event of a participant default. A default management auction is one of the tools that a CCP may use

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CPMI Papers  |  No 192  | 
25 June 2020
PDF full text
 (466kb)
 |  32 pages

Central counterparties (CCPs) have become increasingly critical components of the financial system in recent years, due in part to the introduction of mandatory clearing for standardised OTC derivatives in some jurisdictions. Consistent with the key responsibility of guaranteeing the fulfilment of transactions to their clearing participants, CCPs play an important role in mitigating contagion in the event of a participant default. A default management auction is one of the tools that a CCP may use to transfer a defaulting participant's positions to a non-defaulting participant, thereby restoring the CCP to a matched book.

This CPMI-IOSCO report outlines certain issues that CCPs should consider regarding default management auctions processes. It also identifies practices that CCPs could consider in the development and improvement of default management auctions to address those issues.

CPMI and IOSCO will work with the industry to progress some issues related to CCP default management auctions over the next 24 months. At the end of this timeframe, CPMI and IOSCO intend to take stock of industry progress towards consensus on those issues as well as towards implementation of concrete measures (where relevant) and reconsider whether additional work, potentially including guidance, would be necessary.

International Settlement
The Bank for International Settlements (BIS) is an international company limited by shares owned by central banks which "fosters international monetary and financial cooperation and serves as a bank for central banks". The BIS carries out its work through subcommittees, the secretariats it hosts and through an annual general meeting of all member banks. It also provides banking services, but only to central banks and other international organizations. It is based in Basel, Switzerland, with representative offices in Hong Kong and Mexico City.

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