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Improving resolvability: partial property transfers and central counterparties
Capital Markets Law Journal  (IF),  Pub Date : 2019-08-26, DOI: 10.1093/cmlj/kmz016
Jo Braithwaite, David Murphy

One of the most significant reforms introduced in the wake of the global financial crisis was the introduction of mandatory clearing for certain standardised ‘over the counter’ (OTC) derivatives. As a result of this policy, central counterparties (CCPs) have assumed a larger role in the global financial system. Designing a harmonised regime for the orderly management of failing CCPs is an integral part of post-crisis regulatory reforms but is challenging. This work remains ongoing at the international, regional and national levels. This article seeks to contribute to the ongoing debates. The article’s focus is on a particularly appealing resolution tool, partial property transfer. It explains how a resolution strategy using partial property transfer interacts with the typical legal structure of systemically significant CCPs. The first thesis developed in this article is that in order for resolution authorities to be able to implement a partial property transfer of a failing clearing service or services while ensuring the continuity of critical service provision, ex ante reforms to the organisational structure of some clearing houses should be considered. The second is that, to be fit for purpose, the creditor safeguard used in a partial property transfer resolution needs to be framed in terms of the losses at the point of transfer to creditors of the affected clearing service. The article offers proposals designed to facilitate effective resolutions in this context. It provides worked examples to illustrate the rationale behind the proposals and to explore how they improve the resolvability of large CCPs.