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III Default Management, 10 Segregation and Portability of Cleared OTC Derivatives in Europe

Bas Zebregs

From: Clearing OTC Derivatives in Europe

Edited By: Bas Zebregs, Victor de Seriere, Rezah Stegeman, Patrick Pearson

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2023. All Rights Reserved.date: 19 April 2024

Derivatives — Central counterparty (CCP) — Settlement — Financial collateral

This chapter assesses the segregation and portability requirements for over-the-counter (OTC) derivatives clearing in Europe under the European Market Infrastructure Regulation (EMIR). EMIR prescribes that client positions and assets should be held and recorded in segregated accounts at the level of the central counterparty (CCP). The segregation and portability regime aims to ensure that upon a clearing member (CM) default, these assets do not become part of the bankruptcy estate of the CM but can be transferred to another CM or returned to the client. The chapter then describes the segregation models as imposed by EMIR as well as the models that are actually offered in practice, including private omnibus models, value segregation models, and different margin models. This is followed by a description of the portability framework as well as the main hurdles—including any potential insolvency complications—that may prevent porting or the return of assets. The author concludes that, although the segregation and portability arrangements may appear to be robust at first glance, there are still several areas of concern.

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