On October 15, the Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissioners (IOSCO) published a final report entitled, “Recovery of Financial Market Infrastructures” (the FMI Report). The FMI Report provides guidance to financial market infrastructures (FMIs) for designing recovery plans from market threats to prevent severe systematic disruptions or failures. FMIs include central counterparties, payment systems, trade repositories, and settlement systems.
The FMI Report, which was originally issued for consultation in August 2013, supplements the international standards for FMIs published by the Committee on Payment and Settlement Systems (now the CPMI) and IOSCO in April 2012 entitled, “Principles for Financial Market Infrastructures” (PFMIs). The FMI Report does not impose any additional standards, but rather provides guidance on how to implement those standards to establish effective recovery plans.
The FMI report mandates that FMIs should develop comprehensive and effective recovery tools to allocate any uncovered losses and to cover any liquidity shortfalls. Additionally, FMIs should put in place measures to address unbalanced positions and the replenishment of financial resources, including using the FMI’s own capital. The recovery plan should also set appropriate incentives for the FMI’s owners, participants and other relevant stakeholders to control and monitor any risk-taking activities of the FMI.