* No clearer meets the tougher new rules so far
* Costs for users of clearing houses set to rise
By Huw Jones
LONDON, April 16 Top clearing houses for stock,
bond and derivatives trades must hold enough capital by the end
of this year to stay in business if two of their biggest
customers go bust, global regulators said on Monday.
Clearing houses like LCH.Clearnet and Eurex Clearing
must also draw up "living wills" or wind-up plans
that can be activated if they get into trouble so that
customers' assets remain protected.
The requirements are part of a package agreed jointly by a
Bank for International Settlements committee (CPSS) and global
securities watchdog IOSCO. The aim is to ensure that clearing
houses, payment systems and settlement houses are robust enough
to handle anticipated heavier demand.
"At the moment no one will be meeting these rules so this
will require some effort from the industry to raise the bar and
assure a higher level of protection for investors," said CPSS
member Daniela Russo from the European Central Bank.
"They will require more financial resources and they will
have to improve the quality of collateral as much as they can,"
The Group of 20 top economies (G20) has already pledged to
introduce the tougher rules by the end of 2012.
"With these new principles, authorities have a good basis on
which to ensure a safe and stable financial infrastructure,"
said Paul Tucker, Deputy Governor of the Bank of England and
chairman of the CPSS committee.
Policymakers were alarmed after the collapse of U.S. bank
Lehman Brothers in 2008 at the lack of transparency in the $700
trillion derivatives market that is mainly traded among banks.
The G20 has agreed that contracts are cleared where
possible, a process backed by a default fund and which paves the
way for ownership of a security to be exchanged for cash.
"The users will have to pay but they will benefit from a
higher level of protection," Russo said.
Some users may benefit from posting less collateral as more
of their contracts are netted against each other during
clearing, she added.
Another innovation is a requirement to force clearing houses
and settlement systems to write a "living will", spelling out
what would happen if they got into trouble.
"The plan should contain, among other elements, a
substantive summary of the key recovery or orderly wind-down
strategies, the identification of ... critical operations and
services, and a description of the measures needed to implement
the key strategies," the new rules say.
Clearing houses must also have rules and procedures to make
sure that if they are in trouble, their customers' positions and
accompanying collateral can be moved to another clearing house.
The rules require clearing houses to make public the
criteria for using them and "which permit fair and open access".
The regulators also published consultation papers on how
supervisors in the G20 countries can assess whether the new
rules are being complied with.