The Bank of England has published a statement of policy setting out its approach to determining commercially reasonable payments to clearing members whose contracts are subject to a statutory tear up in CCP resolution, together with a policy statement responding to feedback received to the BoE consultation paper on the subject.
Respondents were generally supportive of the proposals in the consultation paper, while recognizing the challenging circumstances in which a statutory tear up may occur. The policy statement summarizes the feedback received and provides the BoE's responses to the points raised in relation to: (i) CCPs' role in proposing prices for torn up contracts; (ii) responsibility for determining a commercially reasonable price; (iii) definition of a commercially reasonable price; (iv) CCPs' incentives when proposing prices; (v) access to pricing information in stressed market conditions; (vi) benefits to the high bar for deviating from CCPs' proposed prices; (vii) determining an alternative price; (viii) scope of a statutory tear up; and (ix) the BoE's approach to CCP resolution.
The BoE statement of policy entered into effect from December 19, 2024. In the policy statement, the BoE confirms that it still intends to publish in due course a document on its approach to CCP resolution.
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