Response to consultation on RTS on minimum requirement for own funds and eligible liabilities (MREL)

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2. Should the resolution authority be allowed to adjust downwards? What are the specific circumstances under which resolution authorities should allow a smaller need to be able to absorb losses before entry into resolution and in the resolution process than indicated by the capital requirements?

LCH.Clearnet is of the view that the resolution authority should be able to consider the specific case of CCPs that are supervised both as CCPs and as credit institutions, and determine that the capital requirements applicable to a CCP should be taken into account when considering MREL. More precisely, not only should EMIR capital requirements be taken into account, but also MREL under BRRD should not lead to inconsistent results with the CCP recovery and resolution legislation that is expected to be published shortly.

3. Should any additional benchmarks be used to assess the necessary degree of loss absorbency? If yes, how should these be defined and how should they be used in combination with the capital requirements benchmark? Should such benchmarks also allow for a decrease of the loss absorption amount compared to the institution’s capital requirements?

As noted above, LCH.Clearnet does not believe that a credit institution’s capital requirement is a relevant benchmark for determining the loss absorbency capacity of a CCP. For CCPs, default fund requirements are calculated to withstand the losses of the largest two clearing members in extreme but plausible market conditions, (Article 42(3) of EMIR).

4. Do you consider that any of these components of the overall capital requirement are not appropriate indicators of the capital required after resolution, and if so why?

Under Article 2 of Regulation (EU) No 152/2013, CCPs are required to hold a sufficient amount in reserve to ensure that operational expenses for a period of at least 6 months (or however long its competent authority believes is necessary) to effect an organised winding-down of its clearing service. We believe this is the appropriate approach for CCPs and propose the following amendment to Article 3(6):

(6) The capital requirements referred to in paragraph 5 are in particular the following:
e. own funds requirements applicable to CCPs pursuant to Article 2 of Regulation (EU) No 152/2013.

5. Is it appropriate to have a single peer group of G-SIIs, or should this be subdivided by the level of the G-SII capital buffer? Should the peer group approach be extended to Other Systemically Important Institutions (O-SIIs), at the option of resolution authorities? If yes, would the appropriate peer group be the group of O-SIIs established in the same jurisdiction? Should the peer group approach be further extended to other types of institution?

We do not believe that the peer group approach is appropriate for CCPs with a banking license. As highlighted above, the activities of a CCP are very different to those of a credit institution.

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LCH.Clearnet Group Limited