Trade exposures with CCPs - CRR Provision: Difference between revisions

Trade exposures with CCPs - CRR Provision (view source)

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 Respectfully, it is submitted, it would not:
-It is clear in {{crrprov|306(1)(c)}} that the {{crrprov|CCP}} must have defaulted under the transaction (i.e., more than being generally “in default” in the abstract, in the sense of being “insolvent”). Of course, a {{crrprov|CCP}}’s {{tag|insolvency}} would come into play if it ''led'' to a [[default]] (which ordinarily it would, unless the {{tag|contract}} had already been breached by the [[clearing member]], in a way that, of itself, brought about the {{crrprov|CCP}}’s insolvency!)
+It is clear in {{crrprov|306(1)(c)}} that whether or not the [[CCP]] is generally “in default” in the abstract, in the sense of being “[[insolvent]]” it must have specifically [[default]]ed under the transaction (that is, it must have failed to pay something that it owed to the clearing member).
-It ought to be safe to say any [[negligence]] (whether or not [[Gross negligence|gross]]), [[wilful default]] or [[fraud]] on behalf of the {{crrprov|clearing member}} in carrying out its obligations under the transaction with the {{crrprov|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).
+Of course, a {{crrprov|CCP}}’s {{tag|insolvency}} would be likely to ''lead'' to a transaction [[default]].
+Any [[negligence]]<ref>Whether or not [[Gross negligence|gross]])</ref>, [[wilful default]] or [[fraud]] on the {{crrprov|clearing member}}’s part under the {{crrprov|CCP}} transaction would, [[QED]], be a default ''by the {{crrprov|clearing member}}''. The {{crrprov|CCP}} then would be ''entitled''  to withhold payment under the transaction; ie, it would not be in default in doing so.
+What, then, if a {{crrprov|clearing member}} default were so egregious that it caused the total failure of the {{crrprov|CCP}}, meaning the CCP failed to pay even amounts that it was obliged to pay on default by the {{crrprov|clearing member}}?
 So a loss to the {{crrprov|clearing member}} which arose out of the {{crrprov|CCP}}’s inability to perform under a transaction which, in turn, came about as a result of the clearing member defaulting 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.
+{{ref}}