Third country central counterparty (CCP) supervision as a catalyst for more centralized EU CCP supervision?

ABSTRACTIn early 2022, a UK CCP cancelled some $4 billion of transactions in the war-affected nickel market, triggering outrage from market participants that were in the money. The ‘nickel debacle’ illustrates that CCP risk management and loss absorption mechanisms may result in value redistribution among stakeholders. With CCP stakeholders located in multiple jurisdictions, crisis management decisions from a single-jurisdiction CCP supervisor may not pursue multi-jurisdictional financial stability or a fair balance of stakeholder interests across jurisdictions. Although the case for centralised supervision of EU CCPs thus appears strong, national concerns have persistently blocked increased centralisation. This article re-examines decentralised EU CCP supervision in light of the much-debated post-Brexit centralised EU supervisory regime for systemically important third country CCPs. Two new arguments emerge from this juxtaposition, revealing a dichotomy between the named supervisory regimes that appears hard to justify. First, a decentralised supervisory regime for EU CCPs is difficult to logically square with the policy arguments underpinning the post-Brexit EU supervisory system for systemically important third country CCPs. Secondly, the controversial location policy for ‘too systemically important’ third country CCPs could be more justifiable if the EU were to adopt centralised EU supervision of systemically important EU CCPs.