## wpiea2022014-print-pdf — References (excerpt) ## Source details **Canonical URL:** [wpiea2022014-print-pdf — References (excerpt)](https://www.imf.org/-/media/files/publications/wp/2022/english/wpiea2022014-print-pdf.pdf) ## Other formats - [Markdown version](/-/media/files/publications/wp/2022/english/wpiea2022014-print-pdf.pdf.md) - [Structured JSON version](/-/media/files/publications/wp/2022/english/wpiea2022014-print-pdf.pdf.json) --- ### Introduction — role and features of CCPs - CCPs interpose between counterparties (novation) to improve safety and efficiency and to ensure payments are made on time. - Key CCP risk management practices: - Revaluing contracts daily. - Requiring margin posting (variation margin and initial margin). - CCPs can calm market fears after a clearing member (CM) default by: - Facilitating transfers of failed CM positions and margin to solvent CMs. - Covering position losses with prefunded financial resources. - Multilateral netting via CCPs reduces systemic exposure to counterparty risk and decreases interim cash flows, increasing operational efficiency. - Caveat: central clearing may not enhance netting if different products are cleared through different CCPs or multiple CCPs clear the same product. ### Global policy context and mandate implementation - G-20 call: all standardized OTC derivatives to be cleared through CCPs (G20, 2009). - Implementation status highlights: - "18 of 24 of the Financial Stability Board (FSB) member jurisdictions have in force comprehensive standards, criteria or requirements for determining specific OTC products to centrally clear—an unchanged number since 2018." - Such standards apply to "at least 90 percent" in the relevant jurisdictions that have adhered to mandatory clearing. - Six FSB member jurisdictions remain without a framework for central clearing of standardized OTC derivatives: Argentina, India, Indonesia, Russia, Saudi Arabia and Turkey. - Domestic reforms have extraterritorial effects: foreign counterparties subject to mandatory clearing can effectively force banks in non-mandating jurisdictions to clear at a CCP. - Regulatory incentives supporting central clearing include higher bank capital requirements for non-centrally cleared derivatives and margin requirements on non-centrally cleared OTC derivatives. ### Particular challenges for EMDEs and cross-border dimensions - Derivatives denominated in EMDE currencies are more likely to be traded and cleared outside the home economy (major centers: New York, London, Hong Kong SAR, Singapore). - Very few EMDEs have onshore markets comparable in activity to offshore markets. - Example: at least one EMDE (Indonesia) has prohibited trading of its local currency outside its jurisdiction, limiting central clearing to local CCPs. - Local policy tools to influence trading and clearing are limited in many EMDEs. - Cross-border clearing mandates can complicate feasibility of local CCP options and the ability of counterparties to comply with multiple jurisdictions’ obligations. ### Conditions for "advanced implementation" of a clearing mandate - Advanced implementation generally presupposes: - (i) legislative/regulatory framework specifying products to be cleared; - (ii) a liquid trading market in the contracts to be cleared; - (iii) an authority supervising (broadly defined) implementation of such framework; - (iv) at least one CCP where central clearing of the specified products can take place. - National examples (verbatim features preserved): - Australia — ASIC Derivative Transaction Rules (Clearing) 2015: mandatory central clearing for OTC IRD denominated in AUD, USD, EUR, GBP and JPY, applicable to Australian and foreign financial institutions above a clearing threshold of AUD 500 million of total gross notional outstanding positions. - Canada — CSA Notice of National Instrument 94-101, entered into force on April 4 2017: mandatory central clearing for OTC IRD denominated in USD, EUR, GBP, and CAD, applicable to local counterparties; foreign counterparties may comply with equivalent foreign rules. ### Market structure and participant implications - Typical market participants: - Banks (most active in local OTC derivatives markets), hedging client FX and interest rate exposures and hedging own risks for larger cross-border banks. - Other end users: pension funds, insurance companies, asset managers, non-financial corporations—using OTC derivatives to mitigate price and interest rate movements and reduce cash flow volatility. - Sell-side firms (dealers) provide market-making liquidity. - Cross-border activity draws banks from non-mandating jurisdictions into central clearing when their foreign counterparties are subject to a clearing mandate. - Margin requirements on non-centrally cleared transactions and capital requirements indirectly encourage central clearing. ### Incentives linked to qualifying CCP (QCCP) status and Basel III - Basel III incentives: - OTC derivatives cleared at a "qualifying CCP" (QCCP) receive lower counterparty risk charges. - Example: a 2% weighting on solvency margin if settled at a Qualifying CCP; the paper notes some jurisdictions are even more lenient (example given: Colombia, 0%). - QCCP criteria: - A CCP must be licensed, supervised and regulated in line with the Principles for Financial Market Infrastructures (PFMIs), and meet information-sharing standards regarding risk charge calculations. - For cross-border CCPs, foreign supervisors will assess PFMI implementation by reference to their own implementation. ### Equivalence, recognition, and supervisory arrangements - EMIR requires non-EEA CCPs to be recognized by ESMA for EU institutions to meet their clearing obligation using those CCPs; equivalence of the home jurisdiction’s legislative and regulatory framework to EMIR is a prerequisite for recognition. - ESMA has full supervisory powers over ICE Clear Europe Ltd. and LCH Ltd.; technically there is no EU deference for those CCPs. ### Table-based evidence (selected findings preserved verbatim) - Table 1: G-20 Jurisdiction Progress Towards Meeting the Clearing Mandate — categories include "Advanced Implementation" and "Work in Progress." - Advanced Implementation: Australia, Brazil, Canada, China, EU, Hong Kong SAR, Japan, Korea, Singapore, South Africa, Switzerland, United Kingdom, USA, Mexico, Japan. - Work in Progress: Argentina /1, India /2, Indonesia /2, Russia /2, Saudi Arabia /1, Turkey. - Table 2: Non-EU and Non-U.S. OTC Foreign Exchange and Interest Rate Derivatives CCPs — selected entries (role/country/capacity, EU/US recognition flags preserved verbatim): - Australia — ASX Clear — FX,IR — EU - Australia — ASX Clear (Futures) — FX,IR — EU,US - Brazil — BM&F BOVESPA (“B3”) — FX,IR — EU - Chile — ComDer — FX,IR - China — Shanghai Clearing House — FX,IR - Colombia — Cámara de Riesgo Central de Contraparte de Colombia — FX,IR - Hong Kong SAR — OTC Clearing Hong Kong SAR — FX,IR — EU,US - India — India Clearing Corporation Limited (CCIL) — FX,IR — EU - India — NSE Clearing Limited — FX,IR — EU - India — Metropolitan Clearing Corporation of India Limited — IR — EU - Japan — Japan Securities Clearing Corporation — IR — EU,US - Korea — Korea Exchange — IR — EU,US - Mexico — Asigna — FX,IR — EU - Russia — NBCI National Clearing Centre — FX,IR - Singapore — SGX Derivatives Clearing Ltd. — FX,IR — EU - South Africa — JSE Clear — FX,IR — EU - Turkey — Istanbul Settlement and Custody Bank Inc. — IR - United Kingdom — ICE Clear Europe Ltd. — FX,IR — EU,US - United Kingdom — LCH Ltd. — FX,IR — EU,US ### Operational and membership constraints for cross-border clearing - Constraints and factual notes: - Global CCPs clear only a limited set of currencies: besides EUR, GBP, JPY, and USD, interest rate derivatives can currently be cleared in only "23 other currencies", and FX derivatives in only "2" other currencies (appendix referenced). - Local counterparties must meet foreign CCP membership requirements or be accepted as clients of an existing clearing member. - If local currency derivative volumes are too small to be cleared at a global CCP, that may indicate those derivatives are not systemically important enough to justify a central clearing mandate domestically. ### A. Which Products Should be Centrally Cleared? - Authorities need mandatory OTC derivatives trade reporting to identify market participants and trading. - Five general characteristics necessary and sufficient for effective central clearing (Gregory (2014)): - Legal and economic terms should be standardized (documentation, definitions, valuation calculations, payment structures and dates). - Products should be non-complex to avoid adverse selection and valuation subjectivity. - Products should be liquid for accurate valuations and to facilitate contract replacement if a CM defaults; liquidity should be robust. - Products should not be subject to wrong-way risk (when product and CM default risks are highly correlated). - Product trading volumes should be sufficient to make central clearing economically worthwhile. - Additional considerations: - Sufficient historical price observations for CCP stress testing (an issue for products with relatively new underlying asset classes or reference rates, e.g., LIBOR-to-RFR transitions). - Process standardization (straight-through processing, electronic confirmation) and automated post-trade processing as evaluation criteria. - Practical challenges and alternatives: - Contract standardization across differing legal frameworks can be difficult and may fracture markets. - Concentrated banking sectors can create problematic wrong-way risk for local clearing. - Where conditions do not hold, bilateral clearing with robust margin standards may be preferable. - ISDA (2018a) recommends markets not meeting clearing criteria focus on implementing a clean netting regime to enable development toward central clearing. Box 1 — Margin Requirements on Non-Centrally-Cleared OTC Derivatives (key numeric phasing and rules preserved verbatim) - 2011: G-20 added margin requirements on non-centrally cleared derivatives. - Starting in March 2017, all financial firms and systemically important nonfinancial entities (“covered entities”) required to start exchanging initial and variation margin on all non-centrally cleared derivatives (BCBS-IOSCO, 2020). The new requirements do not apply to physically settled FX forwards and swaps. - Phasing: - Phasing started on September 1, 2016 with all in-scope firms exchanging variation margin since March 1, 2017. - Initial margin requirements are being phased in over six-years, based on the average notional amount of all the uncleared OTC derivatives that a group transacts. - Initial margin need not be posted if the calculated amount is less than €50 million. - Requirements apply only to contracts entered into after the start of the specific phase in period. - Example phase thresholds: - Phase one (September 1, 2016 to August 31, 2017): groups with aggregate month-end average notional amount (AANA) exceeding €3.0 trillion (March–May 2016) became subject when transacting with another covered entity that also meets that condition. - Second phase (September 1, 2017 to August 31, 2018): covered entities with AANAs greater than €2.25 trillion. - After September 1, 2022, all covered entities with AANAs greater than €8 billion will be required to post initial margin. - For AANA calculation purposes physically settled FX forwards and swaps are included, even though they are exempted from the requirements. - Preliminary evidence indicates the uncleared margin rule incentivizes central clearing (e.g., U.S. CFTC staff findings). ### B. Where Should OTC Derivatives Transactions be Cleared? — Stylized models and implications - Authorities’ policy options: require local CCPs, allow foreign CCPs, or adopt variations. Four stylized models: - Model 1: Local and Foreign CCPs — allow market participants choice; authorization process for foreign CCPs and cooperation arrangements likely. - Examples: Canada, Australia, Singapore, Hong Kong SAR allow clearing on either local or global CCPs while retaining oversight tools. - Model 2: Foreign CCP only — mandate clearing at foreign CCPs when market structure does not support a local CCP; local participants may become direct CMs or use indirect clearing through foreign CCP CMs. - Model 3: Clear at a local CCP that interoperates with a foreign CCP — CCPs treat each other as CMs (interoperability), enabling local and foreign clearing while reducing need for multiple memberships. - Benefits: cost savings; Downsides: legal, operational, credit risks; interoperability is hardly used for OTC derivatives. - Model 4: Regional CCP — creation of a regional CCP serving regional market needs (detailed prerequisites in regional CCP section). - Market infrastructure governance issues to consider: - Options range from allowing any initiative to operate (with regulatory guidance) to establishing a monopoly or accrediting several CCPs (oligopoly) depending on market circumstances. - Data protection/confidentiality standards may need harmonized contractual undertakings. ### Regional CCP model — description and prerequisites - Potential benefits: - Significant cost savings through economies of scale in technical infrastructure. - Preconditions: - Participating markets must have sufficient liquidity and volume and comparable market practices. - Legal and regulatory convergence required: alignment of membership criteria, settlement venue agreements, collateral holding rules across jurisdictions. - Supervisory arrangements: - Cooperative supervision with MOUs and supervisory colleges; lead authority needs resources to coordinate effective supervision. - Status: apart from preparatory work, no such regional CCP has been set up. - Alternative pathway: regional integration through mergers/acquisitions. ### IV. The Local CCP Option — feasibility overview (paragraphs 32–33) - Main condition for local clearing: domestic market size must be sufficiently large to allow a sound business case and prospects to run a profitable enterprise. - Literature evidence: - Economies of scale create incentives for concentration and vertical integration; scope for netting increases with range of cleared instruments and markets; high fixed costs favor larger CCPs. - Providers focusing on a narrow range of asset classes are more efficient. - Competition and market development cautions: - Vertical integration may raise competition issues and impede access to CCPs for some market participants. - Ongoing requirement: - CCP must constantly assess market size adequacy in the context of Principle 15 of the PFMI (General business risk). ### Challenges and benefits of local clearing (paragraphs 34–38) - Key challenge — clearing member (CM) concentration: - CM concentration can pose systemic risks; loss or stress of concentrated dealers could impact clearing and trading, including contagion channels even absent default. - Smaller, highly interconnected financial systems may limit a local CCP’s ability to act as a firewall against contagion from a default of a member. - Example of a stress event: - Sweden’s Nasdaq Clearing AB on September 10, 2018: Einar Aas failed to pay a margin call; an auction led to a loss of €114 million in excess of collateral. The shortfall consumed €7 million of Nasdaq’s capital and €7 came from a €166 million fund made up of contributions from non-defaulting members. - Mitigation approaches: - Example: Clearing Corporation of India (CCIL) offers non-guaranteed clearing of interest rate swaps—cash flows centrally netted but no credit exposure to CCIL created; members run bilateral counterparty credit exposure for swap trades during their life. - Operational and supervisory resource challenges: - Smaller jurisdictions may struggle to absorb fixed costs of setting up appropriate risk management and supervision. - To enhance resilience, CCPs could have, at central bank discretion and subject to conditions, access to central bank services including direct access to central bank-operated payment systems, routine access to intraday liquidity, and collateral services. - Benefits of local clearing: - Full netting benefits at local level; reduced operational/back-office costs via straight-through-processing. - Potential margin offsets between OTC derivatives denominated in local currency and local exchange-traded derivatives. - Local collateral solutions via the local central securities depository. - Local CCP operations may be less hampered by exchange controls because local CCPs can accept local currency collateral. - Market development benefits: - Local CCP may spur derivatives market development and build trust among counterparties, facilitating exchange trading. ### Supervision, legal basis, and jurisdictional scope (paragraphs 38–41 and Box 2) - Supervisory sovereignty and crisis response: - A local CCP gives domestic authorities direct supervisory capacity under national legal and regulatory frameworks in normal and crisis circumstances. - Local CCP maintains its own locally prescribed and maintained default fund, limiting exposure of domestic banks to foreign shocks transmitted through participation in foreign CCP default funds. - PFMI compliance and sound legal basis: - Local CCPs must comply with the PFMIs and have a sound legal basis for material aspects of activities in all relevant jurisdictions per PFMI Principle 1. - Essential legal areas include licensing, ongoing supervision, recognition, resolution of CCPs; book entry securities; holding structures; validity of collateral; CM recovery; resolution and insolvency; settlement finality; enforceability of netting and close-out netting; private international law. - Determining “relevant jurisdictions”: - Relevant jurisdictions include incorporation, licensing, supervision, location, service-provision jurisdictions, and jurisdictions posing material risk through settlement venues, participants, or collateral holdings. - Private law and insolvency considerations (Box 2 summary): - Collateral creation and transfer must be speedily and validly effective; legal opinions under laws of all relevant jurisdictions should demonstrate clarity. - Insolvency insulation: CCPs must be able to immediately realize collateral and sell it commercially without bankruptcy receiver/clawback invalidation; close-out netting enforceability is critical. - Protection of customers of insolvent CMs: ability to identify and segregate customers’ positions and collateral, and transfer customers’ positions promptly to another consenting CM. - Settlement finality and timing: law should clarify when transfers become irrevocable and binding on third parties, including treatment relative to insolvency and recovery measures. ### Foreign clearing — benefits and challenges (Model 1 and 2 considerations) - Benefits of foreign clearing: - Global CCPs generally have greater capacity and more diversified membership to manage idiosyncratic defaults, offering more potential and less correlated surviving CMs to participate in hedging and liquidating defaulter positions. - Foreign clearing may be the only way to implement central clearing where too few potential CMs exist locally or local authorities lack resources to backstop or supervise a local CCP. - Challenges and limitations: - A global shock or a large non-default loss can negate idiosyncratic-default benefits; prominence of G-SIBs among CMs raises systemic risk likelihood. - Major global CCPs may offer only a limited range of certain local-currency OTC derivatives products. - Margin and collateral constraints: - Implementing collateral requirements in the currencies of local CMs may challenge exchange controls. - Deposits of initial and variation margin in global currencies could conflict with exchange controls if a bank reaches its limit. - Global CCPs often accept only major currencies and a restricted set of eligible securities for initial margin; variation margin generally must be submitted in cash in the currency of the underlying exposure. - Example: LCH accepts USD, EUR and GBP cash for initial margin purposes, with limited exceptions for other major currencies (e.g., AUD, CAD, CHF, DKK, JPY, NKK and SKK), plus fixed income securities issued by major currency sovereigns and their agencies, and some international financial institutions. - Foreign CCP clearing members may be unwilling to serve smaller users or may do so at high cost; similar problems can affect local entities seeking access via foreign clearing members. - Exposure transmission and tail-risk: local participants may be exposed via a global CCP’s default fund to shocks originating in other jurisdictions, including the unlikely failure of a global CCP in extreme scenarios. - Reduced local monitoring capacity: use of a foreign CCP reduces local authorities’ capacity to monitor local exposures; cross-border cooperation arrangements are essential but may be limited in effectiveness. - Liquidity backstops: local central banks could arrange backup facilities (e.g., currency swap lines), but access to such liquidity is discretionary of the central bank of issue. ### Different regulatory approaches to cross-border provision of clearing services - Overarching goal: manage cross-border activity of domestic participants while ensuring safe prudential cooperation with third-country jurisdictions to avoid duplicative national clearing obligations. - Three broad approaches: - National treatment: treat foreign actors/products no less favorably than domestic counterparts; same registration/authorization requirements apply. - Passporting: single authorization/registration allows provision of services within an economic area under supervision of a single home authority (e.g., intra-EU clearing/passporting under EMIR). - Deference: recognition by a jurisdiction of another jurisdiction’s determination as equivalent; typically requires additional supervisory action and ad hoc comparative assessment of functional equivalence. - Deference assessments examine elements such as: - Compliance with international standards (e.g., PFMIs). - Equivalence of regulatory and supervisory regimes and enforcement effectiveness. - Existence and functioning of information sharing and cooperation arrangements (MoUs). - Regulatory standing and approval of relevant cross-border activity by the foreign regulator. - Features and risks of deference: - Outcome-based assessments focused on substantial equivalence, but deference can be full, partial, or conditional. - Deference can reduce duplicative obligations and enhance harmonization but may be influenced by access and reciprocity considerations, potentially favoring major CCPs and raising concentration risks. Box 3 — U.S. and EU Approaches to Equivalence (key procedural points preserved verbatim) - U.S. framework: - CFTC and SEC supervise CCPs clearing OTC derivatives for U.S. business. Under Dodd-Frank, recognized CCPs may clear for U.S. persons; CFTC/SEC can exempt a CCP from registration if regulated by a comparable jurisdiction while retaining supervisory powers. - CFTC rule changes allow “simplified registration” and “alternative compliance” if conditions (i)–(iv) are met (foreign CCP compliance with core principles; good regulatory standing; no substantial risk to U.S. financial system; information sharing arrangement in place). - EU framework (EMIR): - Equivalence decision by the European Commission is necessary before third-country CCPs can provide clearing services to CMs established in the EU. - Conditions include compliance with legally binding requirements equivalent to Title IV of EMIR, effective supervision and enforcement, cooperation agreement between ESMA and relevant third-country regulator, and equivalent AML/CFT rules. - Article 25a developments: individual assessment of "comparable compliance" for “Tier 2 CCPs”; ESMA entrusted with supervising ongoing compliance of Tier 2 CCPs in consultation with central banks of issue. ### Withholding tax on cross-border payments of interest related to collateral/margin — mechanics, problems, and policy recommendations - Mechanics and issue summary: - Cleared derivative positions generate increased daily interest flows (on posted margin) between participants and CCPs, typically payable cross-border on both initial margin and variation margin. - Under the source principle, foreign residents may be taxed on locally sourced passive interest when paid by a local resident entity, triggering withholding tax collection at source. - Absent relief, the local paying entity would need to withhold a fixed amount (e.g., 10 percent or other applicable rate, subject to tax treaty terms) from gross interest relating to collateral/margin at payment to the foreign resident. - Why withholding tax is problematic for clearing: - High-frequency daily margin payments make calculating and applying withholding on interest payments onerous or impracticable for a local CCP; withholding is typically on gross entitlements rather than net set-off amounts. - Industry practice requires interest payments to be made free and clear of withholding tax, with the paying entity bearing the cost of any tax withheld; local withholding could be borne by local participants or priced into transactions, increasing costs. - Jurisdictions imposing withholding tax may discourage foreign participants from clearing locally, reducing liquidity; many global centers either do not impose withholding on interest or provide specific concessions/reliefs. - Common approaches to managing withholding tax: - Many jurisdictions relieve local CCPs and local participants of withholding obligations for payments to foreign CCPs via legislated concessions or broader exemptions to provide certainty and support central clearing. - Example legislative/concession approaches: - U.S.: "portfolio interest exemption" (see §§ 871(h) and 881(c) of the Internal Revenue Code of 1986); zero withholding may apply under certain treaties. - U.K.: withholding only required from cross-border yearly interest payments made by non-banks (with short interest exceptions) and a specific exemption exists for payments of interest made by a recognized clearing house. - Alternative (non-tax-reform) approach: design clearing mandate flexibilities (Model 1) to mitigate withholding tax frictions (e.g., requiring foreign participants to clear via local branches). - Policy recommendations (preserved verbatim emphasis): - Jurisdictions designing a CCP framework or adopting a clearing mandate should: - Ensure no other distortive and inefficient taxes apply to cleared trades, including withholding taxes that impede settlement amounts. (¶67) - Ensure clearing for foreign participants with no other presence in the clearing country does not give rise to unintended tax consequences. - Consider legislated concessions or specific exemptions in domestic tax law for interest payments related to cleared trades (payments by local participants to foreign CCPs and payments by local CCPs to foreign participants) to provide certainty and neutrality. - If not adopting legislated concessions, design clearing mandate flexibilities (e.g., Model 1 options) to mitigate withholding tax frictions while recognizing this may be less neutral than specific tax relief. - Recognize many emerging and advanced markets will need specific measures (legislated concessions) or operational actions (binding clearing rules) to manage cross-border withholding tax frictions relating to daily interest on initial margin and variation margin. ### Conclusions on clearing mandate design (paragraphs 67–76) - No one-size-fits-all approach; selection of central clearing configuration depends on: - Structure of local financial services industry; - Characteristics and volumes of traded products and fixed-cost constraints in setting up a CCP; - Legal feasibility of deference, mutual recognition, substituted compliance, enforceability of close-out netting and collateral, and compliance with PFMIs on legal basis; - Supervisory considerations and desirability of retaining supervisory control; - Law and practice of CCP recovery and resolution and cross-border resolution implications; - Domestic and international tax law settings, with a key impediment being withholding tax treatment of cross-border payments on daily interest for initial margin and variation margin. *Italic: Source: wpiea2022014-print-pdf — References (excerpt).* ### References ..... ..................................................................................................... ### wpiea2022014-print-pdf - References ..... ..................................................................................................... ### Introduction — role and features of CCPs - CCPs can improve the safety and efficiency of the financial system by interposing themselves between counterparties (novation) and ensuring payments are made on time. - Key CCP risk management practices cited: - Revaluing contracts daily. - Requiring margin posting (variation margin and initial margin). - CCPs can assist in calming market fears after a clearing member (CM) default by: - Facilitating transfers of failed CM positions and margin to solvent CMs. - Covering position losses with prefunded financial resources. - Multilateral netting via CCPs can reduce systemic exposure to counterparty risk and decrease the number of interim cash flows, increasing operational efficiency (Wendt, 2015; ISDA, 2018b). - Caveat: central clearing may not enhance netting if different products are cleared through different CCPs or multiple CCPs clear the same product (Duffie and Zhu, 2011). ### Global policy context and mandate implementation - G-20 leaders have called for all standardized OTC derivatives to be cleared through CCPs (G20, 2009). - Implementation status: - "18 of 24 of the Financial Stability Board (FSB) member jurisdictions have in force comprehensive standards, criteria or requirements for determining specific OTC products to centrally clear—an unchanged number since 2018." - Such standards apply to "at least 90 percent" in the relevant jurisdictions that have adhered to mandatory clearing (FSB, 2019). - Six FSB member jurisdictions remain without a framework for the central clearing of standardized OTC derivatives: Argentina, India, Indonesia, Russia, Saudi Arabia and Turkey. - Domestic reforms have extraterritorial effects: foreign counterparties subject to mandatory clearing can effectively force banks in non-mandating jurisdictions to clear at a CCP, directly or indirectly. - Regulatory incentives supporting central clearing include higher bank capital requirements for non-centrally cleared derivatives and margin requirements on non-centrally cleared OTC derivatives (BCBS-IOSCO, 2020; BIS, 2014). ### Particular challenges for EMDEs and cross-border dimensions - Derivatives denominated in EMDE currencies are more likely to be traded and cleared outside the home economy (major centers: New York, London, Hong Kong SAR, Singapore). - Very few EMDEs have onshore markets comparable in activity to offshore markets (Upper and Valli, 2016). - At least one EMDE (Indonesia) has prohibited trading of its local currency outside its jurisdiction, effectively limiting central clearing to local CCPs (FSB, 2021). - Local policy tools to influence trading and clearing are thus limited in many EMDEs. - Cross-border clearing mandates can complicate feasibility of local CCP options and the ability of counterparties to comply with multiple jurisdictions’ obligations. ### Conditions for "advanced implementation" of a clearing mandate - An advanced implementation of the clearing mandate generally presupposes: - (i) legislative/regulatory framework specifying products to be cleared; - (ii) a liquid trading market in the contracts to be cleared; - (iii) an authority supervising (in the broad sense, including oversight/oversight arrangements) implementation of such framework; - (iv) at least one CCP where central clearing of the specified products can take place. - Examples of implemented national regimes: - ASIC Derivative Transaction Rules (Clearing) 2015 in Australia: mandatory central clearing for OTC IRD denominated in AUD, USD, EUR, GBP and JPY, applicable to Australian and foreign financial institutions above a clearing threshold of AUD 500 million of total gross notional outstanding positions. - CSA Notice of National Instrument 94-101 (Canada), entered into force on April 4 2017: mandatory central clearing for OTC IRD denominated in USD, EUR, GBP, and CAD, applicable to local counterparties; foreign counterparties may comply with equivalent foreign rules. ### Market structure and participant implications - Typical market participants: - Banks (most active in local OTC derivatives markets), using derivatives to hedge client FX and interest rate exposures and, for larger cross-border banks, to hedge their own risks. - Other end users: pension funds, insurance companies, asset managers, non-financial corporations—primarily using OTC derivatives to mitigate price and interest rate movements and reduce cash flow volatility. - Sell-side firms (dealers) provide market-making liquidity. - Cross-border activity draws banks from non-mandating jurisdictions into central clearing when their foreign counterparties are subject to a clearing mandate. - Even absent a mandate, margin requirements on non-centrally cleared transactions and capital requirements can indirectly encourage central clearing. ### Incentives linked to qualifying CCP (QCCP) status and Basel III - Under Basel III, OTC derivatives cleared at a "qualifying CCP" (QCCP) receive lower counterparty risk charges. - Basel III example: a 2% weighting on solvency margin if settled at a Qualifying CCP; the paper notes some jurisdictions are even more lenient (example given: Colombia, 0%). - To be a QCCP for Basel III purposes, a CCP must be licensed, supervised and regulated in line with the Principles for Financial Market Infrastructures (PFMIs), and meet information-sharing standards regarding risk charge calculations. - For cross-border CCPs, foreign supervisors will assess PFMI implementation by reference to their own implementation. ### Equivalence, recognition, and supervisory arrangements - EMIR requires non-EEA CCPs to be recognized by ESMA for EU institutions to meet their clearing obligation by clearing with the non-EU CCP and for that CCP to achieve "qualifying" status; as a prerequisite for recognition the European Commission would have to determine the "equivalence" of the home jurisdiction’s legislative and regulatory framework to EMIR. - The paper notes that ESMA has full supervisory powers over ICE Clear Europe Ltd. and LCH Ltd.; technically there is no EU deference for those CCPs. ### Table-based evidence (selected findings preserved verbatim) - Table 1: G-20 Jurisdiction Progress Towards Meeting the Clearing Mandate - Advanced Implementation: Australia, Brazil, Canada, China, EU, Hong Kong SAR, Japan, Korea, Singapore, South Africa, Switzerland, United Kingdom, USA, Mexico, Japan (note: table in source lists jurisdictions under "Advanced Implementation" and "Work in Progress" as shown). - Work in Progress: Argentina /1, India /2, Indonesia /2, Russia /2, Saudi Arabia /1, Turkey (with explanatory footnotes defining categories of "Work in Progress"). - Source for table: FSB (2021). - Table 2: Non-EU and Non-U.S. OTC Foreign Exchange and Interest Rate Derivatives CCPs (selected entries) - Australia — ASX Clear — FX,IR — EU - Australia — ASX Clear (Futures) — FX,IR — EU,US - Brazil — BM&F BOVESPA (“B3”) — FX,IR — EU - Chile — ComDer — FX,IR - China — Shanghai Clearing House — FX,IR - Colombia — Cámara de Riesgo Central de Contraparte de Colombia — FX,IR - Hong Kong SAR — OTC Clearing Hong Kong SAR — FX,IR — EU,US - India — India Clearing Corporation Limited (CCIL) — FX,IR — EU - India — NSE Clearing Limited — FX,IR — EU - India — Metropolitan Clearing Corporation of India Limited — IR — EU - Japan — Japan Securities Clearing Corporation — IR — EU,US - Korea — Korea Exchange — IR — EU,US - Mexico — Asigna — FX,IR — EU - Russia — NBCI National Clearing Centre — FX,IR - Singapore — SGX Derivatives Clearing Ltd. — FX,IR — EU - South Africa — JSE Clear — FX,IR — EU - Turkey — Istanbul Settlement and Custody Bank Inc. — IR - United Kingdom — ICE Clear Europe Ltd. — FX,IR — EU,US - United Kingdom — LCH Ltd. — FX,IR — EU,US - Notes from table: FX = foreign exchange, IR = interest rate; EU = European Union, US = United States. ### Operational and membership constraints for cross-border clearing - Market participants in jurisdictions lacking local CCPs may face difficulties finding clearing opportunities for local currency derivatives because: - Global CCPs clear only a limited set of currencies: besides EUR, GBP, JPY, and USD, interest rate derivatives can currently be cleared in only "23 other currencies", and FX derivatives in only "2" other currencies (as reported in an appendix referenced). - A local counterparty must meet foreign CCP membership requirements or be accepted as a client of an existing clearing member. - If local currency derivative volumes are too small to be cleared at a global CCP, that may indicate those derivatives are not systemically important enough to justify a central clearing mandate domestically. *Italic: Source: wpiea2022014-print-pdf - References ..... .....................................................................................................* ### 14. Authorities face different policy options in determining: i) which OTC derivatives to centrally clear; ### 14. Authorities face different policy options in determining: i) which OTC derivatives to centrally clear; and ii) where to clear them. ### A. Which Products Should be Centrally Cleared? - Authorities need mandatory OTC derivatives trade reporting to identify market participants and their trading; this was called for by G-20 leaders at the 2009 Pittsburgh Summit. - A conceptual framework for products whose clearing is feasible and desirable should be established. Five general characteristics necessary and sufficient for effective central clearing (Gregory (2014)): - Legal (documentation and definitions) and economic terms (valuation calculations, payment structures and dates) should be standardized to facilitate trade processing, multilateral netting, and contract replacement if a CM defaults. - Products should be non-complex to avoid adverse selection and valuation subjectivity. - Products should be liquid for accurate valuations and to facilitate contract replacement if a CM defaults. This liquidity should be robust. - Products should not be subject to wrong-way risk (when product and CM default risks are highly correlated). - Product trading volumes should be sufficient to make it economically worthwhile for central clearing services to be offered. - Additional considerations: - There should be enough historical price observations for CCP stress testing purposes; this is an issue for products with relatively new underlying asset classes or reference rates (e.g., interest rate products transitioning from a LIBOR basis to new risk-free rate (RFR) indices). - Sidanius and Wetherilt (2012) suggest adding process standardization (straight-through processing, electronic confirmation) and automated post-trade processing as evaluation criteria. - Practical challenges: - Contract standardization may be difficult due to differing legal frameworks (e.g., bankruptcy treatment in civil law vs common law jurisdictions). - Standardization may have unintended consequences and fracture markets. - Concentrated banking sectors with a small number of highly correlated clearing members could create problematic wrong-way risk for local clearing. - For products and markets meeting the criteria, moving trading onto exchanges or centralized platforms may be advisable; centrally clearing exchange-traded derivatives is legally and operationally simpler than clearing bilaterally negotiated contracts. - If conditions do not hold: - Bilateral clearing with robust margin standards may be preferable. - ISDA (2018a) recommends markets not meeting the clearing criteria focus on implementation of a clean netting regime to enable development of more liquid derivatives markets that might facilitate future central clearing. - Local firms may already clear derivatives in globally systemically important currencies with counterparties under a clearing mandate, reducing the need for local contracts to meet these criteria. Box 1 — Margin Requirements on Non-Centrally-Cleared OTC Derivatives - In 2011, G-20 leaders added margin requirements on non-centrally cleared derivatives to the OTC derivatives reform program launched in 2009. - Starting in March 2017, all financial firms and systemically important nonfinancial entities (“covered entities”) were required to start exchanging initial and variation margin on all non-centrally cleared derivatives (BCBS-IOSCO, 2020). The new requirements do not apply to physically settled FX forwards and swaps. - Phasing in: - Phasing started on September 1, 2016 with all in-scope firms exchanging variation margin since March 1, 2017. - Initial margin requirements are being phased in over six-years, based on the average notional amount of all the uncleared OTC derivatives that a group transacts. - Initial margin need not be posted if the calculated amount is less than €50 million. - Requirements apply only to contracts entered into after the start of the specific phase in period. - Example phasing thresholds: - Phase one (September 1, 2016 to August 31, 2017): groups with aggregate month-end average notional amount (AANA) of uncleared OTC derivatives for March, April, and May of 2016 exceeding €3.0 trillion became subject when transacting with another covered entity that also meets that condition. - Second phase (September 1, 2017 to August 31, 2018): covered entities with AANAs greater than €2.25 trillion. - After September 1, 2022, all covered entities with AANAs greater than €8 billion will be required to post initial margin. - For AANA calculation purposes physically settled FX forwards and swaps are included, even though they are exempted from the requirements. (BCBS-IOSCO, 2020) - Preliminary evidence indicates the uncleared margin rule incentivizes central clearing: - U.S. CFTC staff found firms that were CCP clearing members chose to clear a higher percentage of their swaps in the non-deliverable FX forwards (NDF) market, and the rule induced some entities to become clearing members (Onur and others, 2021). ### B. Where Should OTC Derivatives Transactions be Cleared? - Authorities can require local CCPs, allow foreign CCPs, or adopt variations. Four stylized models are identified; practical implementation may converge across models. - Market infrastructure governance issues to consider: - Authorities could allow any central clearing initiative to operate but must provide regulatory guidance to protect CCP legal and financial robustness and ensure supervision or rely on cooperation agreements for foreign CCPs. - Alternatively, authorities could establish a monopoly (a single CCP selected via legal basis, tendering, or accreditation) or an oligopoly (accredit several candidates meeting regulatory conditions). Choice depends on market situation and sustainability of business models. - Existing clearing landscape: large financial institutions may already offer limited clearing services or could establish and own a CCP to institutionalize and develop markets and ensure a level playing field. - Data protection and confidentiality standards may need harmonized contractual undertakings for CCPs and participants to protect sensitive client and business data and preserve a level playing field. - One policy option: require local CMs and foreign market participants to use a local CCP for specified OTC derivatives contracts (clearing through a CCP located in the country). Foreign participants could become local CMs or settle through local CMs. Motivations include systemic importance, direct supervision needs, central bank liquidity comfort, and limiting data leakage. No jurisdiction mandates local clearing as the only option. Model 1: Local and Foreign CCPs - Authorities may lack power to register or control access to foreign CCPs by "local participants." They could recognize or defer to foreign CCPs while imposing conditions allowing adequate oversight of local participants through arrangements with the foreign CCP’s home jurisdiction. - This model leaves choice to market participants and may optimize multilateral netting benefits and robustness to certain shocks if global CCPs comply with PFMI and other safeguards. - Examples: Canada, Australia, Singapore, and Hong Kong SAR allow market participants to clear on either local or global CCPs, while retaining oversight tools and not precluding future local CCP development. - Practicalities: an authorization process for foreign CCPs and cooperation arrangements (e.g., MOUs) with foreign authorities are likely. Model 2: Foreign CCP only - Authorities could require central clearing of certain derivatives but mandate clearing at foreign CCPs when market structure does not support a local CCP. - Local participants could become CMs in the foreign CCP or clear through a foreign CCP CM (indirect clearing). - This model suits smaller local participants that lack capability or plans to meet foreign CCP membership requirements. - CCP membership access criteria often include minimum capital and operational capacity and the ability to participate in default procedures and loss mutualization; these criteria influence firms' decisions on direct participation. - Many asset managers, hedge funds, and institutional investors may prefer indirect clearing to avoid minimum capital, back office, and infrastructure costs and to avoid direct involvement in default management processes. Model 3: Clear at a local CCP that interoperates with a foreign CCP - Interoperability enables counterparties to clear at different CCPs when they are parties to a trade; CCPs treat each other as CMs in one interoperable arrangement. - Interoperability can enable local participants to clear locally while foreign participants clear at foreign CCPs; margin and exposures calculations differ for a CCP participating in another CCP. - Benefits: significant cost savings as market participants need not hold multiple CCP memberships. - Downsides: legal, operational and credit risks and complexities; interoperability is hardly used for OTC derivatives. - Examples of CCP links (not for OTC derivatives): interoperability for equities settlement among EuroCCP, LCH Ltd and SIX x-clear AG; government securities settlement link between LCH SA and CC&G; exchange-traded derivatives clearing link between CME and Singapore Exchange. - Such “CCP-CCP” links are covered under PFMI Principle 20. Model 4: Regional CCP - (Model 4 begins in the source but its details are beyond the supplied excerpt.) *IMF Working Paper — excerpt from the chapter on central clearing policy options.* ### 31. This model entails the creation of a regional CCP to serve the needs of that regional market. ### 31. This model entails the creation of a regional CCP to serve the needs of that regional market. ### Regional CCP model — description and prerequisites - Creation of a regional CCP could provide significant cost savings to participants through economies of scale in establishing and maintaining technical infrastructure. - Preconditions for the model: - Markets of participating jurisdictions must have a certain degree of liquidity and volume, and comparable market practices. - Considerable degree of legal and regulatory convergence in the region is required, including alignment of membership criteria, agreements with settlement venues (such as central securities depositories), and collateral holding rules with all relevant legal and regulatory frameworks of the jurisdictions involved. - Supervisory arrangements: - Authorities in the region will likely establish cooperative supervision, including signing of MOUs and supervisory colleges. - At least the lead authority in a supervisory college should avail itself of the necessary resources to carry out effective supervision and to coordinate amongst college members. - Status: - Currently, apart from some preparatory work,22 no such regional CCP has been set up. - Alternative pathway: - Regional integration could also take place through mergers/acquisitions. *22 See European Bank for Reconstruction and Development and Oliver Wyman, 2015, discussing the feasibility of a “regional” CCP for Central and Eastern Europe.* ### IV. The Local CCP Option — feasibility overview (paragraphs 32–33) - Purpose of section: - Examines key considerations in deciding whether to support local clearing in terms of feasibility, challenges and benefits. - Main condition for local clearing: - Domestic market size must be sufficiently large to allow for a sound business case, with sufficient prospects to run a profitable enterprise.23 - Evidence from literature: - Domanski and others (2016): “economies of scale create incentives for concentration and vertical integration in central clearing... [and] the scope for netting increases with the range of cleared instruments and markets, and high fixed costs also favor larger CCPs.” - Li and Marinc (2018): confirmed substantial FMI economies of scale positively associated with size, horizontal and vertical integration; providers focusing on a narrow range of asset classes are more efficient. - Competition and market development cautions: - Vertical integration may raise competition issues and affect market development (e.g., exclusion of broker dealers not associated with the CCP and affiliated exchange). - In countries with multiple exchanges, access to CCPs may become crucial; vertical integration may impede access. - Ongoing requirement: - The CCP must constantly assess the adequacy of the market’s size in the context of Principle 15 of the PFMI (General business risk). *23 It is possible that a CCP could be established in a jurisdiction with a small or even non-existent domestic market for the products being cleared or their underlyings, but these would be rare instances. Although it is a different infrastructure, the Luxembourg Stock Exchange thrives on international listing business with little to no local trading activity; and that international central securities depositories service internationally-traded debt securities without dependency on local business.* ### Challenges and benefits of local clearing (paragraphs 34–38) - Key challenge — clearing member (CM) concentration: - CM concentration can pose systemic risks; sudden loss or stress of one or more concentrated dealers could impact clearing and trading, including feedback effects between these activities. - Concentration can become a channel of contagion even absent an actual default. - Disproportionate effects on smaller markets depending on which dealers are affected and behavior of surviving participants. - Smaller, highly interconnected financial systems may limit a local CCP’s ability to act as a firewall against contagion from a default of a member. - Default of a large local bank places a high burden on surviving CMs to hedge and liquidate positions and to help maintain CCP operations. - Example: - A close call at Sweden’s Nasdaq Clearing AB on September 10, 2018: Einar Aas failed to pay a margin call; an auction led to a loss of €114 million in excess of collateral. The shortfall consumed €7 million of Nasdaq’s capital and €7 came from a €166 million fund made up of contributions from non-defaulting members. (See Bell and Holden, 2018.) - Mitigation approaches: - Example: Clearing Corporation of India (CCIL) offers non-guaranteed clearing of interest rate swaps—cash flows centrally netted but no credit exposure to CCIL created; members run bilateral counterparty credit exposure for swap trades during their life (Pawaskar and Ghose, 2019).25 - Operational and supervisory resource challenges: - Smaller jurisdictions may struggle to absorb fixed costs of setting up appropriate risk management and supervision. - CCPs should be safe and comply with international standards; local authorities must have resources to supervise effectively. - To enhance resilience, CCPs could have access, at the central bank’s discretion and subject to conditions, to central bank services including direct access to central bank-operated payment systems, routine access to intraday liquidity, and collateral services—reducing dependence on commercial banks. - Benefits of local clearing: - Provides clearing members with full netting benefits at local level, enhancing market efficiency and financial stability. - Reduces operational and back-office costs through straight-through-processing. - May allow margin offsets between OTC derivatives denominated in local currency and local exchange-traded derivatives. - Can offer local collateral solutions through the local central securities depository. - Local CCP operations may be less hampered by exchange controls because local CCPs can accept local currency collateral.26 - Market development benefits: - Local CCP may spur derivatives market development where banks are not active. - CCPs can build trust among counterparties who do not know each other and may be the first step toward introduction or deepening of exchange trading. - 2009 G20 leaders’ declaration: called for standardized OTC derivatives to be cleared through CCPs where appropriate and traded on exchanges or electronic trading platforms to address opacity and valuation difficulties in OTC markets (FSB, 2010). *26 Another potential benefit of a local CCP could be to build a trust system among OTC derivatives market participants and encourage the development of new local derivatives products.* ### Supervision, legal basis, and jurisdictional scope (paragraphs 38–41 and Box 2) - Supervisory sovereignty and crisis response (paragraph 38): - A local CCP gives domestic authorities (central banks, securities regulators) direct supervisory capacity under their national legal and regulatory frameworks in normal and crisis circumstances. - Authorities can address CCP risks specific to the local market and take actions under their legal framework without relying on foreign authorities. - Local CCP maintains its own locally prescribed and maintained default fund, limiting exposure of domestic banks to foreign shocks transmitted through participation in foreign CCP default funds. - PFMI compliance and sound legal basis (paragraphs 39–41): - Local CCPs must comply with the PFMIs; have a sound legal basis for all material aspects of their activities in all relevant jurisdictions per Principle 1 of the PFMI. - The PFMI require CPMI-IOSCO membership to apply standards “to the fullest extent allowed by the legal framework in their jurisdiction.” - The concept of “legal basis” is broad: includes legal/regulatory requirements and contractual undertakings. - Essential legal areas: licensing, ongoing supervision, recognition, resolution of CCPs; book entry securities; holding structures; valid constitution of collateral; CM recovery; resolution and insolvency; settlement finality; enforceability of netting and close-out netting; private international law. - CCPs should comprehend and abide by applicable legal/regulatory frameworks, maintain contractual documentation in compliance, and articulate their legal basis to stakeholders and competent authorities. - Determining “relevant jurisdictions”: - Relevant jurisdictions include not only incorporation, licensing, supervision, location, or service-provision jurisdictions, but any jurisdictions posing material risk to the CCP through activities—e.g., where settlement venues or participants are located, and importantly where participants’ collateral is held. - A sound legal basis across multiple jurisdictions is a prerequisite for any policy option; intensity and number of relevant jurisdictions vary by option (lower for local CCP option, higher for foreign and interoperable CCP options). - If multiple relevant jurisdictions exist, good practice may be for the CCP to retain a major law firm present or represented in all such jurisdictions. - Private law considerations (Box 2 highlights): - Clarity on creation and transfer of interests in securities is key—collateral must be speedily and validly created and proven with minimal formalities. - Legal basis should clarify whether interests in securities can be created/transferred by electronic book entries, collateralization techniques available (e.g., pledge of title, full transfer with repo option), and nature of investor’s title in securities. Legal opinions under laws of all relevant jurisdictions should demonstrate such clarity. - Insolvency insulation: - CCPs must be able to immediately realize collateral posted by a CM and sell it commercially without bankruptcy receiver/clawback powers invalidating those transactions; legal framework must explicitly recognize enforceability of close-out netting to accelerate obligations and net positions into a single amount owed by/to insolvent CM’s estate. - Legal framework should derogate from application of certain insolvency provisions (suspect periods, zero hour rules) for identical categories of eligible parties and contracts. - Protection of customers of insolvent CMs: - CCPs should enable identification and segregation between positions and collateral of insolvent CMs and of their customers, and endeavor to transfer the customers’ positions and collateral to another consenting CM promptly. - Netting between different accounts should be prevented and assets in one account should not cover losses in another. - Settlement finality and timing: - Rules must clarify when instructions to transfer cash or securities become irrevocable and binding on third parties (settlement finality), including treatment relative to insolvency and recovery measures. - For legal certainty, settlement finality should be prescribed at the level of law to validly derogate from general insolvency rules; legal opinions under the laws of relevant jurisdictions should demonstrate clarity on settlement finality. *IMF WORKING PAPERS — INTERNATIONAL MONETARY FUND* ### 42. This section examines the key considerations relevant for those policy options hinging on a ### This section examines the key considerations relevant for those policy options hinging on a foreign CCP (Model 1 and 2). ### Benefits and challenges of foreign clearing - Benefits - A global CCP generally has greater capacity and broader more diversified membership to manage the idiosyncratic default of a CM, yielding more potential and less correlated surviving CMs to participate in hedging and liquidating the positions of the defaulter. - The foreign clearing option may be the only way to implement central clearing where: there are too few potential CMs to achieve sufficient risk mutualization; local authorities lack resources to backstop temporarily or to supervise a local CCP. - Challenges and limitations - A global shock or a large non-default loss can negate the idiosyncratic-default benefit; if G-SIBs are prominent among CMs, events are more likely systemic (though arguably rarer). - Major global CCPs may offer only a limited range of certain local-currency OTC derivatives products (Tables 1 and 2 referenced in source). - Margin and collateral constraints: - Implementing collateral requirements in the currencies of local CMs may challenge exchange controls. - Deposits of initial and variation margin in global currencies could conflict with exchange controls if a bank reaches its limit. - As global CCPs only accept major currencies as margin, currency conversions on large margin swings could generate macro risks in domestic markets where local participants operate, assuming those major currencies are cost effectively available. - Example: LCH accepts USD, EUR and GBP cash for initial margin purposes, with a few exceptions for limited amounts of other major currencies (e.g., AUD, CAD, CHF, DKK, JPY, NKK and SKK), plus fixed income securities issued by major currency sovereigns and their agencies, plus some international financial institutions. The collateral requirements for the CME Group, and Hong Kong Exchanges and Clearing Limited are similarly restrictive. In general, variation margin must be submitted in the form of cash in the currency of the underlying exposure. - Practical impact of currency-margin constraints depends on positions local banks and NFCs take in the derivatives market; hedging FX risk generated elsewhere can create right-way risk that may relax some constraints. - Foreign CCP clearing members may be unwilling to serve smaller users or may do so only at great cost; similar problems may arise for local entities seeking access via foreign clearing members. - Exposure transmission and tail-risk: - Local participants may be exposed to international institutions via a global CCP’s default fund and to shocks originating in other jurisdictions. - Local banks may be exposed to the unlikely failure of the global CCP in extreme scenarios (e.g., default of several large CMs), resulting in losses through default fund contributions or recovery and resolution tools; smaller players may be less significant contributors or may be clients rather than clearing members. - Reduced local monitoring capacity: - Use of a foreign CCP reduces the capacity of local authorities to monitor local participants’ exposures, making cross-border cooperative arrangements essential. - Domestic authorities are not the primary regulator/supervisor of the foreign CCP; effectiveness of cooperation may be limited if authorities have conflicting interests, leading to limited powers to obtain timely information, induce change or enforce corrective action. - Local authorities may have limited capacity to intervene during a crisis to mitigate shocks affecting domestic financial stability. - Multitude of jurisdictions with an interest in a global CCP increases complexities during crisis events. - Liquidity backstops: - Local central banks could arrange back-up liquidity facilities, perhaps through central bank currency swap lines, but this requires supervisory cooperation with the central banks issuing relevant currencies; granting access to central bank liquidity remains a discretionary decision of the central bank of issue. - Definition: “A currency swap line is an agreement between two central banks to exchange currencies. This allows a central bank to obtain foreign currency liquidity from the central bank that issues it—usually because they need to provide this to domestic commercial banks.” (ECB, 2020). ### Different regulatory approaches to cross-border provision of clearing services - Overarching goal - Jurisdictions apply combinations of models to manage cross-border activity of domestic market participants while ensuring a safe and sound prudential framework of cooperation with third-country jurisdictions; models aim to ensure clarity on implementation of clearing mandates and avoid duplicative national clearing obligations. - Taxonomy (three broad ways described) - National treatment - Treats all foreign actors or products no less favorably than domestic counterparts; same registration/authorization requirements apply irrespective of foreign regulatory regime. - Under this model, foreign participants in a global CCP are treated as counterparties of the CCP’s home jurisdiction. - Passporting - A single authorization/registration allows provision of services within an economic area under supervision of a single “home” authority; no additional authorization required within the passporting area. - Usually based on an international agreement and extensive harmonization of substantive rules and supervisory cooperation (EMIR created a passporting regime for intra-EU clearing and a deference regime for recognized non-EU CCPs). - Deference - Recognition by a jurisdiction of a determination taken by another jurisdiction as equivalent to the first jurisdiction’s legal and regulatory requirements. - Typically necessitates an additional supervisory action (recognition, prescription or exemption) allowing the foreign entity to operate in the deferring jurisdiction, based on ad hoc comparative assessment concluding functional equivalence of rules and practical supervision/enforcement. - The authority to exercise deference may derive from international agreement, statutory provisions, general rule-making powers or discretionary powers. - Elements examined in deference assessments - Compliance with international standards (e.g., PFMIs — Brazil and South Africa). - Equivalence of regulatory and supervisory regimes including effectiveness of supervisory and enforcement mechanisms (EU, U.S.). - Extent to which legally binding requirements are in force and complied with (Brazil, Canada and South Africa). - Existence and functioning of information sharing and cooperation arrangements such as MoUs or mutual assistance (e.g., Brazil, U.S.). - Approval of relevant cross-border activity by the foreign regulator or good regulatory standing with that regulator (U.S.). - Provision of limited services or facilities cross-border (Canada). - Existence of an equivalent recognition system in the jurisdiction of origin (Brazil and EU). - Features of deference decisions - Assessments aim to be outcome-based and focused on substantial equivalence rather than formally identical legal provisions. - Authorities may consider financial stability risks, supervisory track record, proportionality, and features of the foreign financial system. - Equivalence findings can provide varying thresholds, for example for jurisdictions with lower financial stability risks or for CCPs considered systemically important. - Deference can be full or partial and may be granted subject to specific conditions; deferring authorities typically maintain some supervisory powers by requiring entities to register or apply for exemptions domestically. - Equivalence findings may be accompanied by follow-up supervisory actions concerning the third-country operator (e.g., conditions on risk management measures or margin calculation). - Potential benefits of deference - If implemented in key jurisdictions, deference could allow CCPs and participants to adhere to one set of laws, avoiding duplicative clearing obligations, enhancing legal certainty, cross-border trades and multilateral netting efficiencies. - Jurisdictions deemed equivalent to the same jurisdiction could adopt a “fast-track” to establish equivalence among them, enhancing harmonization. - Practical and policy challenges with deference - Deference processes are influenced by considerations about access of foreign CCPs to domestic markets and by multiplicity of national supervisors. - Reciprocity provisions tied to deference can hinder outcome-based equivalence if reciprocity focuses on formal concepts (financial importance/exposure) rather than quality and robustness of legal and supervisory practice. - Reciprocity decoupled from rigorous equivalence could result in market access effectively available only to major CCPs/participants from important jurisdictions, creating legal uncertainty and potential concentration. *IMF WORKING PAPERS — INTERNATIONAL MONETARY FUND.* ### Box 3. U.S. and EU Approaches to Equivalence ### Box 3. U.S. and EU Approaches to Equivalence ### U.S. framework and recent rule changes - The Commodity Futures Trading Commission (CFTC) and the Securities and Exchange Commission (SEC) exercise supervision over CCPs clearing OTC derivatives and intending to conduct business in the United States.1 - Under Dodd Frank Act, CCPs that have been recognized by the CFTC and SEC are authorized to clear for U.S. persons, even if a non-U.S. counterparty is involved. - The CFTC and SEC can exempt a CCP from registration if it is regulated by a jurisdiction with a comparably robust legal regime, although the CFTC and SEC will retain supervisory powers over the foreign CCP.2 - The CFTC amended its rules to allow for “simplified registration” and “alternative compliance” if all of the following conditions are met: - (i) the foreign CCP’s compliance with its home regulatory regime constitutes compliance with the core principles of the Commodities Exchange Act, - (ii) the foreign CCP is in good regulatory standing in its home jurisdiction; - (iii) the CFTC determines the foreign CCP does not pose substantial risk for the U.S, financial system; and - (iv) an information sharing arrangement is in place between the CFTC and the foreign supervisory authority.3 ### EU framework and equivalence requirements under EMIR - EMIR requires that the legal system of the non-EU CCP provides for a quality of supervisory standards equivalent to that provided in the EU. An equivalence decision is necessary before ‘third country CCPs’ can provide clearing services to CMs established in the EU. - EMIR requires that CCPs “authorized in that third country comply with legally binding requirements which are equivalent to the requirements laid down in Title IV of EMIR,4 that those [CCPs] are subject to effective supervision and enforcement in that third country on an ongoing basis and that the legal framework of that third country provides for an effective equivalent system for the recognition of [CCPs] authorized under third-country legal regimes.” - In the absence of an equivalence finding, the relevant provisions of EMIR and regulatory technical standards will apply to third country CMs. - When one counterparty to an OTC derivative trade is established in an equivalent third country, there shall be deemed compliance with the clearing obligation established by EMIR. - In the absence of these conditions, EMIR will have extraterritorial effect vis-à-vis non-EU entities that enter into a contract with EU counterparties and would be subject to the clearing obligation if they were established in the EU, provided that: - the contract has a “direct, substantial and foreseeable effect within the EU” or - such an obligation is necessary or appropriate to prevent the evasion of any provisions of EMIR. ### EU supervisory reach and Article 25a developments - The EU has recently enabled the assumption of significant supervisory powers over some foreign CCPs.5 - The new Article 25a of EMIR imposes an individual assessment of “comparable compliance” for “Tier 2 CCPs”. - Tier 2 CCPs must additionally be subject to capital requirements and interoperability arrangements deemed comparable to those of EMIR. - ESMA is entrusted with supervising “ongoing compliance” of Tier 2 CCPs with the conditions of their recognition, in consultation with central banks of issue for matters relating to their competence. - The regime is complemented by a delegated regulation by the European Commission specifying the minimum elements to assess for the purpose of comparable compliance and the modalities of such assessment (ESMA, 2019). ### Conditions for ESMA recognition of foreign CCPs under EMIR - Under EMIR, subject to an equivalence finding and upon additional conditions being met, foreign CCPs are recognized by ESMA. - A CCP will only be recognized if the European Commission has made an equivalence decision and, in addition: - (a) the CCP is authorized in the third country and subject to effective supervision and enforcement; - (b) there is a cooperation agreement in place between ESMA and the relevant regulator in the third country; - (c) there are equivalent rules on anti-money laundering and financing of terrorism in the third country. *IMF Working Paper — Box 3. U.S. and EU Approaches to Equivalence* ### 67. Jurisdictions should also ensure that no other distortive and inefficient taxes will apply to ### 67. Jurisdictions should also ensure that no other distortive and inefficient taxes will apply to cleared trades under their existing tax law framework ### Summary of the key withholding tax issue on cross-border payments of interest relating to collateral/margin - Cleared derivative positions must be collateralized (e.g., with margin) and cleared through a CCP (local or foreign). This produces increased daily interest flows (e.g., on posted margin) between participants and CCPs, typically payable on a cross-border basis on both initial margin and variation margin. (¶68) - Under the source principle, foreign residents are taxed in a local jurisdiction on locally sourced income. A typical source rule treats passive interest as sourced locally when paid by a local resident entity (e.g., local CCP or local participant), triggering a tax liability for the foreign resident recipient and collection at source by withholding tax. (¶69) - Absent relief or concession, the local resident entity would need to withhold a fixed amount (e.g., 10 percent or other applicable rate, subject to the terms of any applicable tax treaty) from the gross interest relating to collateral/margin at payment to the foreign resident. The tax withheld satisfies the foreign resident’s local tax liability on that locally sourced interest income. (¶69) ### How withholding tax typically becomes payable (mechanics) - Interest withholding tax commonly becomes payable where: - an amount of interest is paid (typically including payments of interest on initial margin, and payments of price alignment interest on variation margin); - by a local resident entity52 such as a local CCP (or local participant); and - to a foreign resident53 such as a foreign participant (or foreign CCP). (¶69) ### Why withholding tax on collateral/margin interest is problematic for clearing - Withholding obligations on local CCPs or local participants can lead to market distortions and inefficiencies that could undermine clearing. Reasons include: (¶71) - High-frequency daily margin payments and calculations based on net positions/exposures (with principal or agent roles) make calculating and applying withholding on interest payments particularly onerous or impracticable for a local CCP; withholding tax is typically imposed on gross entitlements rather than net set-off amounts. - Industry practice generally requires interest payments to be made free and clear of withholding tax, with the paying entity bearing the cost of any tax withheld. Local withholding tax could therefore be borne by local participants or be priced into local transactions, increasing the cost of cleared trades. - Competitive disadvantage: jurisdictions that impose withholding tax may disincentivize foreign participants from entering and clearing trades locally, reducing local liquidity; many key global financial centers either do not impose withholding on interest payments or provide specific concessions/reliefs for cleared trades. (¶71) ### Common approaches to managing withholding tax on interest for cleared trades - Many jurisdictions relieve local CCPs and local participants of withholding obligations for payments to foreign CCPs via legislated concessions or broader exemptions, achieving greater market certainty and supporting central clearing. (¶72–73) - International norms and initiatives reduce the risk of inappropriate tax escape: the recipient’s residence country typically has primary taxing rights; measures include more robust cross-border exchange of information, substance requirements in the recipient jurisdiction, and proposed minimum taxation. (¶72) - Examples of legislative/concession approaches discussed: (¶73) - U.S.: a broad domestic tax law exemption known as the "portfolio interest exemption" (see §§ 871(h) and 881(c) of the Internal Revenue Code of 1986). Zero withholding tax rates may also apply under certain tax treaties.54 - U.K.: tax is only required to be withheld from cross-border payments of yearly interest made by non-banks (with an exemption/exception for short interest) and a specific exemption exists for payments of interest made by a recognized clearing house.55 - Alternative approach via clearing mandate design (Model 1 flexibility) without specific tax reform: (¶74) - Australia example: foreign participants clearing through the local CCP required to use their local branches, eliminating non-resident interest withholding tax obligations for the local CCP; other foreign participants can use foreign CCPs for clearing with local counterparties, keeping aspects of clearing outside Australia’s withholding tax rules.56 - Despite alternative arrangements, the paper concludes that adopting specific legislated relief for interest payments arising from cleared trades is generally considered good international practice to neutralize incentives and increase attractiveness of local clearing. (¶75) ### Policy implications and recommendations - Jurisdictions designing a CCP framework or adopting a clearing mandate should: (¶67, ¶73–76) - Ensure no other distortive and inefficient taxes apply to cleared trades, including ensuring settlement amounts are not impeded by onerous tax obligations (e.g., withholding taxes). (¶67) - Ensure clearing for foreign participants with no other presence in the clearing country does not give rise to unintended tax consequences (e.g., exposure to taxation in the clearing country on gains that would not have existed absent clearing).51 (¶67) - Consider legislated concessions or specific exemptions in domestic tax law for interest payments related to cleared trades (payments by local participants to foreign CCPs and payments by local CCPs to foreign participants) to provide certainty and neutrality. (¶73, ¶75) - If not adopting legislated concessions, design clearing mandate flexibilities (e.g., Model 1 options) to mitigate withholding tax frictions while recognizing this may be less neutral than specific tax relief. (¶74–75) - Recognize that many emerging and advanced markets will need specific measures (legislated concessions) or operational actions (binding clearing rules) to manage cross-border withholding tax frictions relating to daily interest on initial margin and variation margin. (¶76) ### Conclusions (broader context in clearing mandate design) - There is no one-size-fits-all approach; selection of a central clearing configuration depends on drivers including: (¶76) - Structure of local financial services industry; - Characteristics and volumes of traded products and fixed-cost constraints in setting up a CCP; - Legal feasibility of deference, mutual recognition, substituted compliance, enforceability of closeout netting and collateral, and compliance with PFMIs on legal basis; - Supervisory considerations and desirability of retaining supervisory control; - Law and practice of CCP recovery and resolution and cross-border resolution implications; and - Domestic and international tax law settings, with a key impediment being withholding tax treatment of cross-border payments by local CCPs or local participants to foreign participants or foreign CCPs on daily interest flows for initial margin and variation margin. (¶76) *IMF Working Paper excerpt (paragraphs 67–76, and related sections).* ### References ### References ### Regulatory frameworks, standards, and official reports - Bank for International Settlements (BIS). 2014. “Regulatory Reform of Over-the-Counter Derivatives: An Assessment of Incentives to Clear Centrally,” October. - Basel Committee on Banking Supervision (BCBS). 2014. "Capital Requirements for Bank Exposures to Central Counterparties," April. - ———, 2019. "Basel Framework Margin Requirements." - Basel Committee on Banking Supervision and International Organization of Securities Commissions (BCBS-IOSCO). 2020. “Margin Requirements for Non-Centrally Cleared Derivatives,” Bank for International Settlements. - Committee on Payments and Market Infrastructures and International Organization of Securities Commissions (CPMI-IOSCO). 2012. “Principles for Financial Market Infrastructures.” - European Central Bank (ECB). 2015. “Report of the ESCB on the Need for Any Measure to Facilitate the Access of CCPs to Central Bank Liquidity Facilities.” - ———, 2020. “What Are Currency Swap Lines?” - European Commission. 2017. Equivalence Decisions in Financial Services Policy: An Assessment,” Commission Staff Working Document, February. - ———, 2019. “Communication from the Commission to the European Parliament, the Council, the European Central Bank, the European Economic and Social Committee and the Committee of the Regions: Equivalence in the area of Financial Services,” COM (2019) 349 final. - European Parliament. 2016. "Supplementing Regulation (EU) No 648/2012 of the European Parliament and of the Council on OTC Derivatives, Central Counterparties and Trade Repositories with regard to Regulatory Technical Standards for Risk-Mitigation Techniques for OTC Derivative Contracts Not Cleared by a Central Counterparty." - European Securities and Markets Authority (ESMA). 2010. “Consultation on Standardisation and Exchange Trading of OTC Derivatives,” July 19. - ———, 2019. “Final Report: Technical Advice on Comparable Compliance under article 25a of EMIR,” November 11. - European Systemic Risk Board (ESRB). 2019. “CCP interoperability arrangements.” - Financial Stability Board (FSB). 2010. “Implementing OTC Derivatives Market Reforms,” October. - ———, 2012. “Identifying the Effects of Regulatory Reforms on Emerging Market and Developing Economies: A Review of Potential Unintended Consequences,” Report to the G20 Finance Ministers and Central Bank Governors, June. - ———, 2014. “Jurisdictions’ Ability to Defer to Each Other’s OTC Derivatives Market Regulatory Regimes,” Report to G-20 Finance Ministers and Central Bank Governors, September. - ———, 2019. “OTC Derivative Market Reforms: 2019 Progress Report on Implementation,” October. - ———, 2020. “Guidance on Financial Resources to Support CCP Resolution and on the Treatment of CCP Equity in Resolution,” November. - ———, 2021. “Peer Review of Indonesia,” February. - ———, 2021. “OTC Derivatives Market Reforms: 2021 Note on Implementation Progress,” December. - G20. 2009. “G20 Leaders’ Declaration,” Pittsburgh, September 24-25. - ———, 2013. “G20 Leaders’ Declaration,” St. Petersburg, September 6. - International Monetary Fund (IMF). 2010. “Making OTC Derivatives Safer: The Role of Central Counterparties,” Global Financial Stability Report, April. - –––—, 2015. “Reforms in the OTC Derivatives Market: Technical Note,” South Africa Financial Sector Assessment Program, March. - –––—, 2018. "The IMF’s Institutional View on Capital Flows in Practice," July 2018. - International Organization of Securities Commissions (IOSCO). 2015. “IOSCO Task Force on Cross-Border Regulation, Final Report,” September. - ———, 2019. “Market Fragmentation & Cross-Border Regulation,” June. - U.S. Commodity Futures Trading Commission (CFTC). 2016. “Margin Requirements for Uncleared Swaps for Swap Dealers and Major Swap Participants; Final Rule.” ### Central counterparties, clearing, and market infrastructure studies - Bell, S. and H. Holden. 2018. “Two Defaults at CCPs, 10 Years Apart,” BIS Quarterly Review, December: 75. - Bossu, W., C. Hillier, and W. Bergthaler. 2020. “Local Currency Bond Markets Law Reform: A Methodology for Emerging Markets and Developing Economies,” IMF Working Paper No. 2020/258. - Budding, E., and D. Murphy. 2014. “Design Choices in Central Clearing: Issues Facing Small Advanced Economies,” Reserve Bank of New Zealand AN2014/08, December. - Chande N., J-P Dion, D. McVanel and J. Slive. 2012. "The Canadian Approach to Central Clearing for Over-the-Counter Derivatives," Bank of Canada Financial System Review, December: 43-49. - CME Group. 2020. “CME Clearing Risk Management and Financial Safeguards.” - Committee on the Global Financial System (CGFS). 2011. “The Macrofinancial Implications of Alternative Configurations for Access to Central Counterparties in OTC Derivatives Markets,” CGFS Papers No 46, November. - Delort, D., M. Lathouwers, G. Srinivas, and F. Wendt. 2021. "How to Analyze the Costs and Benefits of Setting Up a Central Counterparty," IMF Working Paper, forthcoming. - Domanski, D., L. Gambacorta, and C. Picillo. 2015. “Central Clearing: Trends and Current Issues,” Bank for International Settlements Quarterly Review, December. - European Bank for Reconstruction and Development and Oliver Wyman. 2015. “Regional Central Counterparty: A Solution for Central and Eastern Europe,” September. - Garvin, N. 2012. “Central Counterparty Interoperability,” Reserve Bank of Australia Bulletin, June. - Gregory, J. 2014. Central Counterparties: Mandatory Clearing and Bilateral Margin Requirements for OTC Derivatives, John Wiley & Sons. - ISDA (International Swaps and Derivatives Association). 2017. “Cross-Border Harmonization of Derivatives Regulatory Regimes: A Risk-Based Framework for Substituted Compliance via Cross-Border Principles.” - ———, 2018a. “Clearing in Smaller or Closed Jurisdictions.” - ———, 2018b. “Quantitative Impact Study Multilateral Netting.” - McPartland, J. and R. Lewis. 2016. “The Challenges of Derivatives Central Counterparty Interoperability Agreements,” Journal of Financial Market Infrastructure, Vol. 4, No. 4. - Onur, E., D. Reiffen, and R. Sharma. 2021. "The Impact of Margin Requirements on Voluntary Clearing Decisions," Unpublished manuscript, April 7. - Pawaskar, V. and P. Ghose. 2019. "The Changing Dynamics of the Indian Interest Rate Derivatives Market," CCIL Monthly Newsletter, January, p.p. 7-22. - Sidanius, C. and A. Wetherilt. 2012. "Thoughts on Determining Central Clearing Eligibility of OTC Derivatives," Bank of England Financial Stability Paper No. 14, March. - Upper, C. and M. Valli. 2016. "Emerging Derivatives Markets?" BIS Quarterly Review, December. - Wendt, F. 2015. “Central Counterparties: Addressing their Too Important to Fail Nature,” IMF Working Paper WP/15/21, January. - Joint Regulatory Authorities of LCH. Clearnet Group. 2008. “Investigation of Risks Arising from the Emergence of Multi-Cleared Trading Platforms”, July. ### Legal, cross-border, and policy analysis - Anwesen, J. 2016. “The Prudential Carve-Out Clause: is Risk the New Corrupt Moral?” 4 Penn. State Journal of Law & International Affairs, No. 749. - Coffee, J. 2014. “Extraterritorial Financial Regulation: Why E.T. Can’t Come Home,” Cornell Law Review, Vol. 99: 1259. - Committee on Capital Markets Regulation and Financial Markets Law Committee. 2015. “Resolving Issues of Legal Uncertainty Relating to the Recognition and Supervision of Central Counterparties,” Comment Paper, September. - Godwin, A., I. Ramsay and E. Sayes, “Assessing Financial Regulatory Coordination and Integration with reference to OTC Derivatives Regulation,” Capital Markets Law Journal, 2017. - Johnson, V. 2015. "International Financial Law: The Case against Close-Out Netting," Boston University International Law Journal, Vol. 33. - Kotzé, A. and C.C.A. Labuschagne. 2014. “The Dilemma of a Central Counterparty versus a Qualified Central Counterparty in a Developing Country,” Procedia Economics and Finance 14: 349-358. - Mayer Brown. 2014. “The Extraterritorial Effect of the EU Regulation on OTC Derivatives,” June. - Paech, P. 2014. “Close-Out Netting, Insolvency Law and Conflict of Laws, LSE Working Papers, 14/2014. - Skeel, D.A. and F. Partnoy. 2007. "The Promise and Perils of Credit Derivatives," University of Cincinnati Law Review, Vol. 75, p. 1019. - Tuckman, B. 2010. “Amending Safe Harbors to Reduce Systemic Risk in OTC Derivatives Markets,” Center for Financial Stability Policy Paper, April 22. - Verdier, P.-H. 2011. “Mutual Recognition in International Finance,” Harvard International Law Journal, Vol. 52. - Wymeersch, E. 2018. “Third-Country Equivalence and Access to the EU Financial Markets Including in Case of Brexit,” Journal of Financial Regulation, Vol. 4, No. 2, 209-275. - Yadav, Y. and D. Turing. 2015. “The Extra-Territorial Regulation of Clearinghouses,” Vanderbilt University Law School Law & Economics, Summer. (Draft). - Johnson, V. 2015. "International Financial Law: The Case against Close-Out Netting," Boston University International Law Journal, Vol. 33. ### Market studies, empirical analyses, and related research - Chande N., J-P Dion, D. McVanel and J. Slive. 2012. "The Canadian Approach to Central Clearing for Over-the-Counter Derivatives," Bank of Canada Financial System Review, December: 43-49. - Dobler, M., S. Gray, D. Murphy, and B. Radzewicz-Bak. 2016. “The Lender of Last Resort Function after the Global Financial Crisis,” International Monetary Fund WP/16/10, esp. p. 32 et seq. - Domanski, D., L. Gambacorta, and C. Picillo. 2015. “Central Clearing: Trends and Current Issues,” Bank for International Settlements Quarterly Review, December. - Li, S. and M. Marinc. 2018. “Economies of Scale and Scope in Financial Market Infrastructures,” Journal of International Financial Markets, Institutions and Money, Vol. 53. - McPartland, J. and R. Lewis. 2016. “The Challenges of Derivatives Central Counterparty Interoperability Agreements,” Journal of Financial Market Infrastructure, Vol. 4, No. 4. - Onur, E., D. Reiffen, and R. Sharma. 2021. "The Impact of Margin Requirements on Voluntary Clearing Decisions," Unpublished manuscript, April 7. - Pawaskar, V. and P. Ghose. 2019. "The Changing Dynamics of the Indian Interest Rate Derivatives Market," CCIL Monthly Newsletter, January, p.p. 7-22. - Wei, S.-J. and Z, Zhang. 2007. “Collateral Damage: Exchange Controls and International Trade,” Journal of International Money and Finance, Vol. 26, No. 5, p.p. 841-863 . - Upper, C. and M. Valli. 2016. "Emerging Derivatives Markets?" BIS Quarterly Review, December. - Garvin, N. 2012. “Central Counterparty Interoperability,” Reserve Bank of Australia Bulletin, June. - Bell, S. and H. Holden. 2018. “Two Defaults at CCPs, 10 Years Apart,” BIS Quarterly Review, December: 75. *Applying The Central Clearing Mandate: Different Options for Different Markets — References (wpiea2022014-print-pdf)* --- _Source: https://www.imf.org/-/media/files/publications/wp/2022/english/wpiea2022014-print-pdf.pdf_