Bloomberg News

Clearinghouses to Face Tougher IOSCO Capital, Liquidity Rules

April 16, 2012

Clearinghouses that handle securities transactions face tougher capital and liquidity requirements as part of revamped global rules to make them “more resilient” to crises.

The measures set “more demanding international standards for payment, clearing and settlement systems,” the International Organization of Securities Commissions said in a statement on its website today.

International clearinghouses for securities trading would have to hold enough capital to withstand the failure of their two biggest members. All market infrastructure would need enough cash and other “liquid resources” to survive “a wide range of potential stress scenarios,” IOSCO said.

Regulators are seeking to bolster protection of market infrastructure such as clearinghouses and central securities depositories, or CSDs, after the Group of 20 countries sought to push more trading of over-the-counter derivatives through official venues.

Clearinghouses such as LCH.Clearnet Group Ltd. and Deutsche Boerse AG’s Eurex Clearing operate as central counterparties for every buy and sell order executed by their members, who post collateral, reducing the threat from a trader’s default.

CSDs, including Euroclear Bank and Deutsche Boerse AG’s Clearstream arm, are responsible for completing transactions by ensuring the delivery of the securities against cash. Such systems settled transactions worth more than $1,000 trillion in 2010, according to European Commission data.

G-20 nations have given themselves until the end of the year to enforce central clearing of standardized OTC derivative contracts.

Clearing and settlement operators should also make plans for how they may be safely wound down if they fail, IOSCO said.

Madrid-based IOSCO brings together national market regulators from more than 100 countries to coordinate rules and share information.

To contact the reporters on this story: Jim Brunsden in Brussels at jbrunsden@bloomberg.net;

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net.


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