Clearing fund – A fund composed of assets contributed by participants in a CCP, or by providers of guarantee arrangements, that may be used to meet the obligations of a defaulting CCP participant and/or in certain circumstances to settle transactions and cover losses and liquidity pressures resulting from such defaults. A Clearing Fund serves as insurance against unusual price movements not covered by the margin calculation in case of a member default. Each Clearing Member typically has to contribute to the Clearing Fund. It may consists of Clearing Members’ directly- deposited capital, or securities or third-party bank guarantees. It is used for securing the counterparty risk not covered by margin deposits.
The Eurosystem strongly supports the Commission’s objective of creating a safe, efficient and integrated EU clearing and settlement infrastructure. In principle, the Communication identifies the key issues that need to be addressed in the field of clearing and settlement in order to enhance integration and reduce systemic risk. The present infrastructure for securities clearing and settlement transactions in the EU remains insufficiently harmonised, highly fragmented and inefficient for cross-border activities. Although some consolidation has been achieved, there remain a very large number of service providers with limited competition between each other.
Clearing Member Eligibility
•Swap Portfolio minimum size of USD1 trillion
•Minimum capital USD5 billion in Clearing Entity or in Parent providing Guarantee
•Credit Rating single A or better
•Margin multipliers applied if existing member downgraded below A
•Compulsory participation in Default Management Process