Report on current central counterparty practices to address non-default losses

CPMI Papers  | 
23 August 2023

This CPMI and IOSCO report presents current practices among central counterparties (CCPs) in addressing potential losses arising from non-default events (ie non-default losses (NDLs)). It is intended to facilitate the sharing and common understanding of existing practices and to advance industry efforts and foster dialogue on CCPs' management of potential NDLs. This report does not create additional standards for CCPs or other financial market infrastructures (FMIs), nor does it provide guidance on existing standards.

CCPs have become increasingly important to the financial system for managing counterparty risk. Therefore, the financial resilience of CCPs in case of losses and liquidity shortfalls is critical for financial stability – whether these losses arise from the default of CCP clearing members or from events other than clearing member defaults, such as investment risk or cyber attacks (ie NDLs).

If not managed properly, NDLs can threaten a CCP's viability and its ability to continue providing critical services to its participants and the markets it serves. Therefore, according to the Principles for Financial Market Infrastructures, CCPs must have policies, procedures and plans for addressing NDLs, in addition to a sound risk management framework to mitigate and manage those risks.

Given the wide range of CCP practices to address NDLs and industry requests for further clarifications, CPMI and IOSCO will continue to work on issues related to NDLs to identify areas where further guidance or recommendations may be useful.