Deutsche Boerse : New rules to stop clearers becoming 'too big to fail'

The new rules are in the final recommendations from a group of central bankers and market supervisors from the world's leading economies on how to deal with collapsing market infrastructure such as a clearing house, payment systems, trade repositories or central securities depositories.

Clearers, or central counterparties (CCPs), such as the DTCC in the United States and LCH.Clearnet (>> London Stock Exchange Group Plc) or Eurex Clearing (>> Deutsche Boerse AG) in Europe, ensure a transaction is completed even if one side of a trade goes bust.

Clearers are set to grow massively as volumes will be boosted by a requirement for them to clear all over-the-counter (OTC) derivatives trades.

"With the introduction of mandatory central clearing of OTC derivatives, it is crucial that we avoid the threat of CCPs becoming the new 'too big to fail' institutions," Financial Stability Board Chairman Mark Carney said in a statement.

All market infrastructure firms that are key to the stability of financial markets will have to set out in advance the steps they would take to recover from a failure, and keep critical services going.

The rules list tools for drumming up cash from a variety sources in a set sequence, such as the clearer's own default fund and from its members.

But if those funding sources dry up then clearers could tap assets being cleared at the time, by imposing a variation margin or haircut, the new rules say.

Such assets belong to funds who are typically not members of the clearing house and fund managers had lobbied to stop such haircuts from being possible.

The assets are owned ultimately by investors who should not have to shore up a private company, the fund managers argued.

But banks that clear the assets on behalf of funds have said they should not have to bear all the burden of propping up a clearing house. If asset managers will not play their part then the clearer could go under and all assets would then be lost.

The Bank of England, headed by Carney, has already agreed to such variation margins in Britain, a major clearing centre.

The final rules will be incorporated in a draft European Union law due in early 2015.

(Reporting by Huw Jones; editing by David Clarke)