Principles for Financial Market Infrastructures

Committee on Payment and Settlement Systems Technical Committee of the International Organization of Securities Commissions Principles for financial market infrastructures Consultative report March 2011 Copies of publications are available from: Bank for International Settlements Communications CH-4002 Basel, Switzerland E-mail: publications@bis.org Fax: +41 61 280 9100 and +41 61 280 8100 This publication is available on the BIS website (www.bis.org) and the IOSCO website (www.iosco.org). © Bank for International Settlements and International Organization of Securities Commissions 2011. All rights reserved. Brief excerpts may be reproduced or translated provided the source is stated. ISBN 92-9197-868-X (online) This report is being issued now for public consultation. Comments should be sent by 29 July 2011 to both the CPSS secretariat (cpss@bis.org) and the IOSCO secretariat (fmi@iosco.org). The comments will be published on the websites of the BIS and IOSCO unless commentators have requested otherwise. A cover note to the report, published simultaneously and also available on the BIS and IOSCO websites, provides background information on why the report has been issued and sets out some specific topics on which comments are particularly requested. CPSS-IOSCO - Consultative report on Principles for financial market infrastructures - March 2011 i Contents Abbreviations ......................................................................................................................... iii Overview of principles and responsibilities ............................................................................. 1 1.0. Introduction ................................................................................................................... 5 Background .................................................................................................................. 5 FMIs: definition, organisation, and function ................................................................... 7 Public policy objectives: safety and efficiency ............................................................. 10 Scope of the principles for FMIs .................................................................................. 11 Implementation and use of the principles and responsibilities ..................................... 15 Organisation of the report ........................................................................................... 15 2.0. Overview of key risks in financial market infrastructures ............................................. 16 Systemic risk .............................................................................................................. 16 Legal risk .................................................................................................................... 16 Credit risk ................................................................................................................... 17 Liquidity risk ................................................................................................................ 17 General business risk ................................................................................................. 17 Custody and investment risk ....................................................................................... 17 Operational risk .......................................................................................................... 18 3.0. Principles for financial market infrastructures .............................................................. 19 General organisation .................................................................................................. 19 Principle 1: Legal basis ............................................................................................... 19 Principle 2: Governance .............................................................................................. 23 Principle 3: Framework for the comprehensive management of risks .......................... 28 Credit and liquidity risk management .......................................................................... 30 Principle 4: Credit risk ................................................................................................. 30 Principle 5: Collateral .................................................................................................. 37 Principle 6: Margin ...................................................................................................... 40 Principle 7: Liquidity risk ............................................................................................. 46 Settlement .................................................................................................................. 52 Principle 8: Settlement fina