CCP recovery and resolution: New tools, but no rules

Some clearing houses are adopting loss allocation mechanisms as a last line of defence if one or more clearing members default. That might help a central counterparty get back on an even keel, but what happens afterwards is unknown. Matt Cameron reports

When the Titanic hit an iceberg in the north Atlantic in 1912, it had 20 lifeboats on board, capable of carrying only half of its 2,200 passengers and crew – there had been little attempt to prepare for the worst. Financial regulators want to avoid that mistake as over-the-counter derivatives clearing houses set out on their own maiden voyage, carrying trades that will mushroom into hundreds of trillions of dollars.

As a result, clearing houses and their member firms are trying to add extra