CPMI and IOSCO Set Forth Expectations for CCP Clearing of FX Instruments

The Committee on Payments and Market Infrastructures ("CPMI") and IOSCO issued a statement on the clearing of deliverable FX instruments by central clearing parties ("CCPs"). The statement attempts to clarify expectations, originally set out in the Principles for Financial Market Infrastructure, with respect to CCP clearing of deliverable FX instruments and the associated models for effecting their settlement.

According to the CPMI/IOSCO Statement, CCPs clearing deliverable FX instruments: (i) should maintain sufficient qualifying, highly reliable liquid resources to cover, on time, liquidity shortfalls that could arise in the settlement of cleared transactions in all settled currencies in default scenarios; (ii) must conduct appropriate due diligence on their participants’ ability to understand, quantify and manage the associated contingent liquidity obligations under its rules; and (iii) must identify the point at which other qualifying liquid resources would be exhausted and any rules-based arrangements would need to be invoked.