As part of their level-2 rulemaking, the European Securities and Markets Authority (ESMA) consulted on six topics around central counterparty (CCP) resolution. These consultations were:

• Draft RTS on safeguards for clients and indirect clients;
• Draft RTS on the valuation of CCPs assets and liabilities in resolution;
• Draft RTS on resolution colleges;
• Draft RTS on the content of CCP resolution plans;
• Draft guidelines for the methodology to value each contract prior to termination; and
• Draft guidelines on the application of the circumstances under which a CCP is deemed to be failing/likely to fail.

ISDA and the Futures Industry Association (FIA) are mostly supportive of the proposed rules, but make the following key comments:

• We have concerns with the valuation for the No-Creditor-Worse-Off (NCWO) principle. Mostly driven by level 1 of the CCP Risk & Resolution Regulation, the counterfactual to resolution includes a lot of components, for instance replacement costs or margin funding for re-establishing positions at another CCP that are not present in the NCWO safeguard in other jurisdictions and that are extremely difficult to value.
• We support the proposals how to distribute and pass on compensation for losses incurred in a fair, proportionate and transparent manner.
• However, we believe that compensation should be distributed only to parties who participated in losses that led to actual and justifiable payment of compensation. Otherwise, a distribution would not be fair.
• In order for the resolution objectives to be met, it is important that all stakeholders, including market participants have sufficient information about the goals and the tools utilized in the resolution plan to enable them to adapt their actions accordingly. If market participants do not have the required visibility, they may develop worst case scenarios and enact mitigation actions to cover all potential resolution actions, even if those were never part of the resolution plan. Some of these mitigation actions by clearing participants might run counter to resolution actions employed by the resolution authority.

Please find below the response to each of the consultations.