The Committee on Payments and Market Infrastructures (CPMI) and IOSCO have issued a statement on the clearing of FX instruments by CCPs. CPMI-IOSCO set out their expectations on clearing deliverable FX instruments and the way in which CCPs should meet their obligations under their principles for financial market infrastructures. A CCP intending to clear deliverable FX instruments:
- does not have to use any particular settlement process and can use paired settlement arrangements. However, irrespective of the settlement process used, the CCP is responsible for that process and for ensuring that it satisfies the principles;
- should ensure that it maintains sufficient qualifying, highly reliable liquid resources to cover, on time, liquidity shortfalls that could arise in the settlement of cleared transactions in all settled currencies in default scenarios;
- should ensure the same level of confidence in the completion of same day settlement of obligations on the originally specified settlement date, irrespective of whether a potential liquidity shortfall on default relates to the obligation of the CCP itself or to obligations of one participant to another; and
- must conduct appropriate due diligence on its participants’ ability to understand, quantify and manage the associated contingent liquidity obligations under its rules. The CCP must identify the point at which other qualifying liquid resources would be exhausted and any rules-based arrangements would need to be invoked.