A working paper issued by the International Monetary Fund argued that interconnectedness among clearinghouses or “CCPs” may be exacerbated because of the increased volumes being cleared through CCPs as a result of regulatory reform following the 2008-2009 financial crisis. Moreover, claimed the paper, there are other risks associated with increased reliance on CCPs that should be better addressed by international regulators, including: (1) the structure of risk waterfalls and loss sharing arrangements that may increase contagion for surviving clearing members; (2) the dependency of CCPs for liquidity, custody, settlement and other services on only a limited number of commercial banks that may add pressure on CCPs and surviving clearing members during a crisis; (3) the impact of the simultaneous sales of collateral by numerous CCPs during a market crisis that may increase market volatility; and (4) the different interests of authorities in globally cleared markets that may impede effective cross-border solutions to address systemic risks. In response, the paper recommends, among other measures, that international standards be “more prescriptive on the structure of the risk waterfall” and that CCPs’ dependence on commercial bank services be reduced (e.g., by using central bank services and maintaining additional capital buffers). Separately, the International Swaps and Derivatives Association issued a paper with recommendations related to recovery and continuity of CCPs. In general, ISDA argues that, in a financial crisis, recovery of a CCP is preferable to its closure. To help ensure a CCP’s recovery following the default of a clearing member, ISDA says that four tools should be available to each CCP: (1) a portfolio auction of a defaulting clearing member’s portfolio as part of a default management process; (2) limited cash calls to surviving clearing members to increase a CCP’s default resources; (3) a loss allocation process in the form of a pro-rata reduction in unpaid payment obligations of the CCP (e.g., haircuts to marked to market gains owed); and (4) consideration of partial contract tear-ups to help the CCP re-establish a matched book. Whatever recovery methods a CCP might employ should be transparently articulated in the CCP’s rulebook, says ISDA. ISDA noted in a footnote that not all of its members believe that cash calls during a crisis are advantageous. These members claim that such calls might be pro-cyclical and aggravate a crisis. They argue that clearinghouses should instead have “ample loss-absorbing resources so that assessments are not required.” CME Group recently provided its views on clearing member default waterfalls and CCP so-called “skin in the game.