The Financial Services and Markets Act 2023 (Resolution of Central Counterparties: Calculation of Maximum Amounts for Cash Calls and Use of Specified Funds) Regulations 2023

• Citation: S.I. 2023/1195
• Sections: 5

Section 1 Citation, commencement, extent and interpretation

(1) These Regulations may be cited as the Financial Services and Markets Act 2023 (Resolution of Central Counterparties: Calculation of Maximum Amounts for Cash Calls and Use of Specified Funds) Regulations 2023.

(2) These Regulations come into force on 31st December 2023.

(3) These Regulations extend to England and Wales, Scotland and Northern Ireland.

(4) In these Regulations—

“ contribution ” means the sum of money a clearing member is required to pay to the CCP that is attributed to a prefunded default fund;

“ default loss ” means loss incurred by the CCP arising as a result of a clearing member defaulting on its obligations to the CCP;

“ excess collateral ” means any collateral held by the CCP in the name of a clearing member in excess of the collateral which that clearing member is required by the CCP to place with the CCP;

“ non-default loss ” means loss incurred by the CCP arising otherwise than as a result of a clearing member defaulting on its obligations to the CCP;

“ prefunded default fund ” means a default fund that is maintained by the CCP under Article 42(1) of EMIR in relation to a particular class, or to particular classes, of instruments;

“ relevant prefunded default fund ” means the prefunded default fund which the CCP maintains in relation to the class, or classes, of instruments to which the default loss relates;

“ specified funds ” means any of the following types of funds held by the CCP—

money which was paid to the CCP by a clearing member to cover the CCP’s potential future exposure in the event of default by that clearing member;

money which was paid to the CCP as a contribution to a prefunded default fund by a clearing member; or

money which, at the end of the period for payment specified in the cash call instrument, is excess collateral held by the CCP in the name of a clearing member.

Section 2 Maximum amount of cash – default loss

(1) Where a CCP has incurred default loss that relates to a class or classes of instruments, in respect of which the CCP maintains one prefunded default fund, the maximum amount of cash that may be specified in relation to a clearing member is two times that clearing member’s contribution to the relevant prefunded default fund.

(2) Where a CCP has incurred default loss that relates to a class or classes of instruments, in respect of which the CCP maintains more than one prefunded default fund, the maximum amount of cash that may be specified in relation to a clearing member (“ C ”) is two times C’s contribution to each relevant prefunded default fund.

(3) The maximum amount in paragraph (2) must be calculated separately in relation to each prefunded default fund to which C is required to contribute.

(4) It is irrelevant—

(a) for the purposes of a calculation under paragraph (2), whether the maximum amount under paragraph (2) has been specified in relation to C’s contributions to another prefunded default fund; or

(b) for the purposes of a calculation under either paragraph (1) or paragraph (2), whether the maximum amount as calculated under regulation 3(1) has been specified.

(5) In this regulation, “ specified ” means either the amount specified in a cash call instrument, or the cumulative amount specified in multiple cash call instruments, as applicable.

Section 3 Maximum amount of cash – non-default loss

(1) Where a CCP has incurred non-default loss, the maximum amount of cash that may be specified in relation to a clearing member is three times that clearing member’s contributions to all prefunded default funds.

(2) It is irrelevant for the purpose of a calculation under paragraph (1) whether any maximum amount as calculated under regulation 2(1) or (2) has been specified.

(3) In this regulation, “ specified ” has the same meaning as in regulation 2(5).

Section 4 Maximum amounts - application to further resolutions

If there is more than one resolution in relation to a CCP, the maximum amounts set out in these Regulations apply separately to each resolution.

Section 5 Use of specified funds

(1) If a clearing member fails to satisfy its obligations under a cash call instrument, whether in full or in part, the Bank may require the CCP to use one or more specified funds of the clearing member to satisfy all or part of that clearing member’s obligations.

(2) A requirement under paragraph (1) may—

(a) specify which type, or types, of specified funds must be used;

(b) specify the order in which any specified funds must be used;

(c) provide that the CCP has discretion as to which specified funds to use.