Trade exposures with CCPs - CRR Provision: Difference between revisions

But it will be a generous client indeed who does not insist on a carve-out from that right for defaults caused by the clearning member's own negligence, wilful default or fraud. Would such a carve-out invalidate an application of {{crrprov|306(1)(c)}}?

It is clear in {{crrprov|306(1)(c)}} that it must be that the {{crrprov|CCP}} has defaulted under the transaction (i.e., more than the {{crrprov|CCP}} just generally be “in default” in the abstract in the sense of being “insolvent”. (Of course, a CCP’s Insolvency would come into play if it led to a default (which ordinarily it would, unless the contract had already been breached by the clearing member, and particularly where that clearing member’s default had, of itself, brought about the insolvency!)

It ought to be safe to say any negligence (whether or not gross), wilful default or fraud on behalf of the {{crrprov|clearing member}} in carrying out its obligations under the transaction with the CCP would, [[QED]], be a default under that transaction by the clearing member: (any action it was ''entitled'' to take under the trasnaction, could hardly be 'negligent' as far as the CCP was concerned).  

So a loss to the {{crrprov|clearing member}} which arose out of the inability of the {{crrprov|CCP}} to perform under a transaction which in turn came about as a result of the clearing member defaulting in its obligations to that {{crrprov|CCP}} would not be “loss suffered in the event that CCP defaults”: if the clearing member sued the CCP for that loss, it would fail.  

Looking at it another way, if such a carve out did invalidate {{crrprov|306(1)(c)}} then the provision would have no application at all, because it would be commercially impossible to remove it.