The UK is proposing legislative solvency changes to protect central counterparties from risk transfer should a member default
LONDON – The UK Treasury has published a consultation paper of proposed reforms to Part 7 of the 1989 Companies Act, modifying general solvency law to protect central counterparties – such as clearing houses and exchanges.
The paper, Modernising the insolvency protections for the operation of financial markets – proposals to reform Part 7 of the 1989 Companies Act seeks to protect clearing houses and exchanges from risk transfer, should one of their members default.
Current legislation does not recognise the commonly used ‘default funds’ used by clearing houses to offset losses of a defaulting member or the range of contracts now cleared by central counterparties.
The proposals would expand the definition of market contracts, make allowances for default funds, and address technical issues arising from ‘client accounts’ across national jurisdictions. The Treasury has set an October 16 deadline for responses.
More on Risk Management
Concerns raised about liquidity in stressed environments
Dealers query risk management, valuation and default management
The institutionalisation of P2P lending is creating new risks, critics warn
The authors investigate the performance of the ordinary least squares (OLS) regression method in Monte Carlo simulation algorithms for pricing American options.
Sign up for Risk.net email alerts
Sponsored webinar: IBM
Watch highlights of this year's London conference
Operational risk and the challenges of defining and dealing with conduct risk
Watch discussions and speakers from our North America conference
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.