Central counterparty resolution execution and resolvability outcomes

Summary

Central counterparties (CCPs) play a vital role in the financial system.^{footnote [1]} The safe operation of UK CCPs is vital for the smooth functioning of both the UK and the international financial system and the Bank of England’s (the Bank’s) regulatory framework must be robust, supporting resilient FMIs that support confidence in the financial system. The Bank recently consulted on the rulebook for CCPs which maintains alignment to relevant international standards. UK CCPs are also subject to close and continuous supervision by the Bank which aims to ensure that their risk management and resilience frameworks enable them to carry out their vital functions in normal times and during periods of stress.^{footnote [2]}

Despite the strength of UK CCPs’ resilience, a CCP may experience extreme stresses which it is unable to manage. Given the systemic importance of CCPs, a CCP failure could risk wider disruption to the financial system. Accordingly, and in line with international standards,^{footnote [3]} a CCP must be capable of being ‘resolved’ in the unlikely event that it fails; that is to say, there is a feasible and credible way of managing a failure of a CCP without excessive disruption to the financial system, interruption to the provision of critical economic functions or exposing public funds to loss. The Bank is the resolution authority for UK CCPs^{footnote [4]} and has responsibility, alongside His Majesty’s Treasury (HMT), for exercising the powers conferred by the CCP resolution regime.^{footnote [5]} This regime, which came into effect at the end of 2023, provides the Bank and HMT with tools and powers to resolve a CCP.

To enable the Bank to discharge its responsibilities, the Bank develops resolution strategies and undertakes resolution planning for each CCP established in the UK.^{footnote [6]} For these strategies to be effective, we need to ensure that CCPs are ‘resolvable’. The UK resolution regime establishes a set of special resolution objectives for CCP resolution. These objectives, alongside the Bank of England’s statutory objective to protect and enhance the stability of the UK financial system, guide the Bank’s developing approach to securing CCP resolvability. The development of this approach is informed by FSB standards and regular engagement with our international counterparts.

Resolving a CCP is a tail-risk event, and each case is likely to be highly situation-specific. It is possible that severe risks could crystallise rapidly, necessitating urgent and decisive intervention by the Bank as the resolution authority to stabilise the CCP, secure continuity of critical clearing services, and prevent wider contagion. In certain circumstances, and subject to the resolution conditions being satisfied, the Bank may need to place a CCP into resolution. That could happen before the CCP’s default management (where relevant) and recovery procedures had been fully exhausted if the Bank assesses that the CCP’s continued deployment of its recovery arrangements could have an adverse impact on financial stability. The speed at which resolution action could be required means that it is critical that the Bank has the operational and governance capacity to respond rapidly, and that a CCP has the capabilities to support the Bank in executing an effective resolution across the range of CCP stabilisation options available to the Bank.^{footnote [7]}

Our work in developing resolution strategies has surfaced some novel and important questions for us to consider as to how best to implement our resolution powers. This exploratory discussion paper (DP) sets out, for feedback, some of the Bank’s current thinking on those questions. The Bank invites the views of stakeholders on three specific resolution execution topics that bear on these resolution strategies. The DP also sets out and seeks views on our preliminary thinking on what it means for a CCP to be ‘resolvable’, which we refer to as ‘resolvability outcomes’. These views will inform the Bank’s on-going policy consideration on implementation of the regime and the enhancement of our planning and preparation for use of our CCP resolution powers.

Resolution execution topics

This DP covers three topics, all relating to how we would use our resolution powers to resolve a CCP. The first two topics are relevant where a CCP fails due to a non-default loss event (eg a crystallisation of operational, cyber or legal risk which results in the CCP incurring a loss that exceeds the CCP’s own resources):

• Resolution powers and the creditor hierarchy: How we should manage the complexity arising in the calculation and execution of a resolution cash call.^{footnote [8]}
• Returning value to CCP creditors: How to return value to CCP creditors that have recapitalised a CCP.

The final topic arises where one or more clearing member(s) default and the Bank is required to intervene in a default loss resolution:

• Considerations in the execution of a statutory partial tear up (PTU): How the Bank should use its discretion when exercising its statutory tear up power^{footnote [9]} in a default loss resolution, in order to return the CCP to a matched book.^{footnote [10]}

Resolvability outcomes

In resolution planning for CCPs, the Bank considers potential impediments to the effective exercise of its stabilisation powers. CCPs have an important role to play in ensuring they have the capabilities necessary for a resolution to be executed in practice. Where necessary, the Bank can require CCPs to take measures to address impediments to resolvability.^{footnote [11]} While robust planning for the resolution of a CCP is essential, alone it is insufficient. The Bank must also be confident that a CCP’s arrangements and/or characteristics would not hinder the implementation of the resolution strategy chosen by the Bank in any specific resolution scenario.

The final section of this DP sets out the draft CCP resolvability outcomes that we are in the process of developing. These draft ‘resolvability outcomes’ are that each CCP has appropriate, timely and robust capabilities to support the Bank’s execution of its resolution, specifically:

1. the ability to deploy recovery and resolution tools on the Bank’s instruction;
2. the ability to secure continuity of critical clearing services through resolution; and
3. the capacity to provide the Bank, HMT and independent valuer with data, modelling and analysis as requested.

The Bank has statutory powers to direct a CCP to address any barriers to resolvability and has published a statement of policy (SoP) on its approach.^{footnote [12]} As explained in that Statement and associated consultation paper (CP), any potential requirements or requests set by the Bank in pursuit of these outcomes would be proportionate and reflective of CCPs’ arrangements.^{footnote [13]} They would only apply directly to CCPs incorporated in the UK. The Bank would generally expect to use its power of direction only where it identifies an impediment which cannot be addressed effectively through engagement with the CCP.

Responses and next steps

The Bank welcomes feedback from all interested parties on the three discussion topics and the Bank’s current thinking on CCPs’ resolvability outcomes as set out in this DP. This DP closes on 4 September 2026. The Bank invites feedback on the discussion questions set out in this DP. Please address any comments or enquiries to CCP.Resolution@bankofengland.co.uk.

Any proposed requirements on CCPs that might result from the Bank’s ongoing policy consideration of the resolution execution discussion topics covered by this DP will be subject to appropriate consultation with industry.

Building on responses to this DP, the Bank intends to continue its consideration of CCP resolvability. We expect to publish a CP by the end of 2026. This consultation would cover the Bank’s proposed CCP resolvability outcomes and resolvability expectations for CCPs. Following consideration of the responses to this consultation, the Bank envisages publishing a further SoP on CCP resolvability in 2027. This publication will be separate to the Bank’s further development of the UK’s regulatory framework for CCPs, although the Bank will be cognisant of the need to co-ordinate these different regulatory initiatives to ensure undue burden is not placed on CCPs and CCP stakeholders.

The Bank also intends to use responses to this DP to inform how the CCP resolution regime will apply to new firms and the appropriate degree of proportionality in the context of the Bank’s proposed policy on mobilisation of new CCPs.^{footnote [14]}

In all cases, the Bank will provide stakeholders with an appropriate period of time to consider and respond to proposals.

1: Introduction

1.1: UK CCP resolution framework

1. The UK CCP resolution regime^{footnote [15]} provides the Bank of England, as resolution authority for UK incorporated CCPs, with eight stabilisation options for resolving a CCP.

These are:

• transfer to a private sector purchaser;
• transfer to a bridge central counterparty;
• transfer of ownership;
• termination of clearing member contracts;
• making a cash call on the CCP’s clearing members;
• reducing variation margin payments due to the CCP’s clearing members;
• writing down any eligible unsecured liabilities and securities of the CCP; and
• taking control of the CCP.

2. These stabilisation options can be effected through the exercise of one or more stabilisation powers, including the share transfer powers, the property transfer powers and the other resolution powers.^{footnote [16]} The regime sets out the strict conditions that must be met for the exercise of such stabilisation powers in pursuit of the Bank’s statutory resolution objectives and provides ancillary provisions and powers to facilitate their effective use.

3. The Bank has flexibility in how it deploys its stabilisation powers to advance the resolution objectives within the conditions and requirements set by legislation. The Bank’s choice of stabilisation power(s) and when and how to apply them would be informed by the specific circumstances and market conditions at the time.

4. In any CCP resolution, maintaining the CCP’s ability to provide critical clearing services is essential. CCPs are key nodes within the financial system. Any interruption to the provision or operation of a critical clearing service would risk substantial disruption. For example, exchanges clearing through the affected CCP could suspend the matching or registration of new trades. There could also be disruption in over-the-counter (OTC) markets that operate on a cleared basis as trade execution and processing would be impeded. This could, in turn, adversely impact price discovery across broader markets. There could also be a wider loss of confidence in the resilience and effectiveness of the financial system, which could feed through to behavioural impacts that may affect the efficiency and effectiveness of financial markets more broadly.

5. The Financial Stability Board’s Key Attributes that apply to Financial Market Infrastructures (FMIs) specify that resolution authorities should undertake regular resolvability assessments, at least for systemically important FMIs.^{footnote [17]} The importance of CCP resolvability is recognised in legislation through FSMA 2023, which provides the Bank with the power to direct a UK CCP to take measures to address impediments to the effective exercise of its stabilisation powers.^{footnote [18]} Several home jurisdictions of non-UK CCPs have similarly recognised the importance of CCP resolvability.^{footnote [19]}

1.2: CCP resolution scenarios

6. Broadly speaking, there are two different ways in which a CCP can fail that could lead to resolution. These are:

• Default loss (DL): where one or more of the CCP’s clearing members fails to meet their obligations to the CCP. CCPs have comprehensive loss allocation arrangements set out in their rulebooks for dealing with clearing member defaults. However, in the unlikely event that the CCP is incapable of managing the clearing member default , or can only do so by taking action that the Bank determines could have an adverse impact on the stability of the UK financial system, the CCP may become subject to resolution action.^{footnote [20]} In this scenario, the Bank, as resolution authority, would take action using the appropriate stabilisation option(s) as set out in Section 1.1 above. This could include the potential use of resolution cash calls to manage any loss to the CCP resulting from unmet obligations of the defaulted clearing member(s). This would be to ensure the CCP continues to meet its payment and settlement obligations to non-defaulting clearing members in accordance with the CCP’s rulebook. The Bank’s statutory tear up powers may also be required to liquidate the cleared positions held by the defaulting clearing member(s), to return the CCP to a ‘matched book’, in which all buy positions are equally matched against sell positions.
• Non-default loss (NDL): where the CCP incurs a loss caused by a reason other than the default of a clearing member or members, such as a crystallisation of cyber, operational or legal risk. Where that loss exceeds the resources available to the CCP or its group to absorb the loss and recapitalise the CCP, the resolution authority may take action to manage this loss and to ensure the CCP is sufficiently capitalised to continue to provide its critical clearing services. The Bank may also take resolution action where this is required to address other non-default risks.

1.3: No Creditor Worse Off safeguard

7. The UK CCP resolution regime includes a statutory ‘No Creditor Worse Off’ (NCWO) safeguard designed to reduce the risk that creditors, counterparties and shareholders of the CCP would be placed in a worse position as a result of the Bank’s resolution action than if the Bank had not intervened and the CCP had entered insolvency.^{footnote [21]} The legislation provides that HMT may establish a compensation scheme and, in doing so have regard, among other matters, to the desirability of avoiding a ‘relevant person’^{footnote [22]} receiving less favourable treatment in resolution than they would have otherwise received under the scenario (the ’NCWO counterfactual’) in which the Bank had not taken resolution action.

8. The legislation establishing the UK CCP resolution regime provides that HMT may make regulations for protecting the financial interests of relevant persons in a CCP resolution scenario.^{footnote [23]} HMT and the Bank have engaged to develop proposed NCWO regulations dealing with the valuation of the treatment of relevant persons in relation to any compensation scheme. These proposed regulations are separate to this DP and have no dependency on it. HMT, alongside the Bank, will engage with CCPs and other stakeholders ahead of laying these regulations in Parliament.

1.4: Resolution timelines

9. To support our preparations for CCP resolution, the Bank has developed stylised resolution transaction timelines to illustrate these different scenarios. The diagrams below are designed to provide an illustrative example of how events could unfold in a particular hypothetical scenario, including the kinds of actions the Bank may consider and the general timeframes in which the Bank may need to act. They do not represent the Bank’s view of how events would necessarily transpire in any given CCP resolution scenario. The specific events, timelines and actions taken by the Bank in any live resolution scenario would depend heavily on the facts and circumstances at the time. Throughout the resolution scenarios illustrated, the Bank would expect to engage with relevant UK and overseas authorities for information sharing and co-ordination purposes as appropriate. In an NDL scenario, during or following the execution of the resolution, the Bank would expect to communicate any approach it might envisage taking with regard to the treatment of the CCP’s equity.

Figure 1: Indicative and stylised DL resolution timeline

Figure 2: Indicative and stylised NDL resolution timeline

2: CCP resolution execution – discussion topics for further consideration

10. The Bank undertakes resolution planning to execute the resolution of a CCP in both DL and NDL scenarios. The Bank also maintains an operational capacity to execute a CCP resolution. The Bank intends to test and exercise these arrangements regularly, to maintain operational readiness to execute a CCP resolution should the need arise.

11. In resolution planning for CCPs, we have identified three key CCP resolution execution discussion topics that we would like to invite views on from stakeholders. In setting out, and inviting public comment on, each of these three technical issues, we hope to advance our thinking on how best to address them in a resolution and thereby enhance our CCP resolution planning. We will use the feedback to inform the development of our approach. This exploratory DP does not constrain the Bank’s future exercise of its statutory powers as resolution authority.

2.1: Resolution powers and the creditor hierarchy in an NDL resolution scenario

12. In line with international standards, UK CCPs have arrangements for passing on certain types of NDL (such as treasury investment losses) to third parties (often clearing members). This enables the CCP to continue operating even if the CCP incurs a substantial NDL that would otherwise exceed the CCP’s own resources.^{footnote [24]} However, CCPs typically do not have rulebook or other contractual arrangements that provide for the comprehensive loss allocation of all forms of NDL, for example, those arising from the crystallisation of operational, cyber or legal risk.

13. UK CCPs are required to have sufficient capital ready and available to cover losses which may arise from a non-default risk, alongside conducting an orderly wind-down or restructuring. But, as with any capital requirement, the CCP’s capital is a finite sum. As a result, although this sum is prudent and subject to supervision by the Bank, it cannot be guaranteed to provide sufficient loss absorbency for the CCP to manage any crystallisation of non-default risk in all scenarios. Accordingly, a sufficiently large loss could, in extreme scenarios, conceivably force the CCP into insolvency if the CCP’s shareholders are unable or unwilling to inject further capital.

14. In such a scenario, the Bank may need to take rapid resolution action to address emerging risks. For example, the Bank has the power to make cash calls on clearing members. In NDL scenarios, these are capped at three times clearing members’ required default fund contributions to the relevant CCP’s entire default fund holdings.^{footnote [25]} The cash call would aim to recapitalise the firm and address the losses that have already arisen. The Bank’s choice to use a resolution cash call does not change the total amount of losses. Instead, in an NDL failure, the cash call avoids the need for the Bank to impose those losses by writing down default fund contributions of clearing members or other unsecured liabilities of the CCP. This may provide operational benefits.

15. In order to assess an appropriate amount of cash call contribution from each clearing member, the Bank would seek to understand the scale of the losses that would have fallen on each clearing member if the CCP had fallen into insolvency, following application of the CCP’s relevant rules. The Bank would aim to scale a resolution cash call in a NDL failure so as not to impose greater losses on a clearing member than it would have borne in the CCP’s insolvency absent resolution. This would be to reduce the risk of successful claims for compensation for breach of the NCWO safeguard, thereby protecting creditors and limiting potential exposure of public funds.

16. Clearing members’ exposures to a CCP generally comprise a complex and dynamic mix of initial margin, default fund contributions and intraday exposures. In many cases, at least some of these exposures may, depending on their legal characterisation, form part of a pool of unsecured liabilities that rank on equal footing (pari passu) with each other within the CCP’s creditor hierarchy. In resolution scenarios, markets may be volatile and the combination of exposures of any one clearing member may be highly unpredictable and subject to rapid change. This affects the ability of the independent valuer to estimate reliably and at pace the size of the loss that each clearing member would have been exposed to in an insolvency counterfactual.^{footnote [26]}

17. This uncertainty presents a challenge for the Bank in determining how losses would have fallen in the hypothetical insolvency of a CCP. It may also make it difficult for clearing members themselves to assess ex-ante their exposures to the CCP if, for example, their loss is affected by such factors as the size of unpaid variation margin gains owing to them on the specific day of resolution.

18. In a given resolution scenario, the Bank would weigh the benefits of achieving a prompt and reliable assessment of clearing members’ counterfactual insolvency exposures to the CCP within its creditor hierarchy against the costs and risks, including potential unintended consequences, of different courses of action.

Potential options

19. One potential option to reduce uncertainty could be for the Bank to build out its analytical capacity to assess a CCP insolvency counterfactual, and to require CCPs to develop modelling capacity to support this assessment. Given the speed at which a CCP resolution scenario may develop, performing ex-ante work to facilitate the assessment of the insolvency counterfactual may well be beneficial. However, such modelling capacity could still leave considerable uncertainty and retain the perception of arbitrariness of calculating the cash call based on volatile exposures at one particular point in time.

20. Another option would be to mandate structural changes to how the CCP’s unsecured liabilities sit in the creditor hierarchy, to create greater predictability and certainty over how losses would fall in a given hypothetical insolvency scenario. A CCP’s unsecured liabilities include default fund contributions from clearing members. Such contributions are much more stable and predictable than initial margin and other variable exposures such as variation margin. CCPs specify the default fund contributions from individual clearing members, typically on a monthly basis, based on the average counterparty risk the clearing member presents to the CCP over a defined period of time. Subordinating the default fund relative to initial margin and other clearing member exposures held by the CCP could provide greater certainty. This would not affect the overall scale of the CCP’s losses although it would align the distribution of any such losses with clearing members’ default fund contributions. CCP capital would still be fully exposed to loss. Subordination would mean that, at least in the first instance, clearing members’ default fund contributions could be used as the basis of calculating resolution cash calls, minimising the risk of breaching the NCWO safeguard.

21. Provided that hypothetical insolvency losses did not extend beyond the default fund contributions, subordination of the default fund would remove the need to consider the quantum and form of initial margin posted by each clearing member with the CCP and any point-in-time trade exposures the clearing member had to the CCP. It would also lessen any risk that clearing members may be incentivised to take action in the short term to seek to manage their point-in-time exposure to a potential insolvency of the CCP, with potential unintended consequences.

22. This subordination could be achieved by, for example, requiring CCPs to make changes to their rulebooks to contractually subordinate the default fund contributions owed to clearing members so that they sit below initial margin held by the CCP and other unsecured liabilities. This approach would only have impact in a scenario in which the CCP entered into resolution or became insolvent. The default fund would remain senior to the CCP’s own capital resources in the creditor hierarchy. The CCP’s default fund would still occupy the same position and role in the CCP’s clearing member default waterfall and would continue to be available for use in DL scenarios as specified by the CCP’s existing rules.

23. Subordination could also be achieved through legislation, which would be subject to discussion with HMT and appropriate Parliamentary process.

24. The Bank would welcome comments on the benefits and costs of these options, including around any ex-ante costs of implementing a change in CCPs’ rulebooks or potential unintended consequences of such changes.

2.2: Returning value to CCP creditors in an CCP NDL resolution scenario

25. As noted in Section 2.1 above, a CCP would be at risk of insolvency if it were to incur a NDL that exceeds its capital. This might happen if the form of NDL incurred is not covered by any loss allocation arrangements the CCP may have, and the CCP is unable to source additional resources on a sufficiently timely basis (for example by raising additional capital or support from a third party, such as its parent) to cover the shortfall. In such an insolvency, any remaining loss would be distributed in accordance with any applicable rules of the CCP and the application of insolvency law, which may result in the CCP equity holders being exposed to loss ahead of any unsecured claims, such as those of clearing members.

26. Alternatively, the Bank could place the CCP into resolution.^{footnote [27]} The Bank could apply powers to write down the CCP’s equity,^{footnote [28]} or to transfer all or a subset of the shares in the CCP or the CCP’s assets to a third party.^{footnote [29]} Should these actions not be sufficient to address the NDL, the Bank could apply further resolution tools that impose losses on clearing members^{footnote [30]} to generate resources to cover the CCP’s realised losses and recapitalise the CCP. This would support the CCP’s viability and advance the special resolution objectives. These measures would be subject to the NCWO safeguard and accordingly the Bank would seek to avoid imposing losses on creditors that would be greater than if the CCP had been left to enter insolvency. But their use raises the question as to whom ownership of the CCP is to be transferred.

Potential options

27. One option is that the Bank could transfer equity to clearing members, either directly or via an intermediary vehicle. However, CCPs often sit within complex corporate groups and rely on shared services or technology platforms. An imposed transfer of the CCP’s ownership or services over a short period of time may risk disrupting these arrangements with the consequential risk of impairing the CCP’s operational continuity.

28. It is possible too that clearing members may be unwilling or unable to assume ownership of a CCP. Issues could arise from constraints presented by business mandates, conflicts of interest or preference to maintain an ‘arm’s length’ relationship with FMIs. Establishment of an ownership structure for a CCP that may involve a large number of shareholders might also complicate the governance structure and ongoing operations of the CCP.

29. In principle, precautionary measures to mitigate any potential operational continuity risks presented by a mandated transfer of ownership of the CCP could be taken. For example, the CCP could be required to put in place arrangements to facilitate the legal and operational separability between itself and its group. This may include arrangements to ensure the continuity of any outsourced critical services provided to the CCP by or through the CCP’s group, arrangements to ensure the CCP has no dependency on its group’s systems, staff or other resources and arrangements to manage the continued provision of any services provided by the CCP to its parent or to other companies in its group. In practical terms, this may require duplicated technical infrastructure, ring-fenced staffing, and revised intragroup agreements.

30. The costs of establishing and maintaining such arrangements could be substantial for some CCPs. Such CCPs might pass on at least some of these costs to their clearing members, thereby reducing the attractiveness of using central clearing services. Requiring ex-ante arrangements could, in some cases, also increase operational complexity, reduce economies of scale, and invite other unintended consequences. The proportionality of any such requirement should therefore be considered carefully.

31. An alternative option could be a mandated profit-share arrangement. Such an arrangement could be implemented through preference shares, other types of instrument, or an equivalent contractual claim. These would redirect profits to clearing members following the use of clearing member resources in resolution. The CCP’s shareholders would retain their ownership of the CCP but clearing members would receive defined profit streams from the CCP until either a defined time or thresholds specified by the profit-sharing agreement are met. The terms of the profit-sharing agreement would need to address the proportion of the CCP’s profit that would be distributed to instrument holders and (if any) to the CCP shareholders, and any upper quantum of profit distribution after which the instrument would cease to operate.

32. The Bank would need to also consider broader issues at the point of failure and during the stabilisation phase. These would include the capacity and incentives of the CCP, its group or clearing members to support the critical services of the CCP in a sustainable and resilient manner. The acceptability of a mandated profit-sharing arrangement to clearing members and its likely effectiveness in mitigating the risk of public funds being exposed through NCWO claims will also need to be fully considered.

2.3: Considerations in the execution of a statutory partial tear up (PTU)

33. The UK resolution regime provides the Bank, in its capacity as the UK resolution authority for CCPs, with a statutory power to tear up cleared contracts in a DL resolution scenario (statutory tear up power).^{footnote [31]} The purpose of this tool is to give the Bank the ability to restore the CCP to a matched book of cleared instruments following the default of one or more clearing members that resulted in the CCP’s resolution. Restoring the CCP to a matched book is essential to prevent the CCP from incurring further default losses and to maintain its continued viability. The Bank would expect to use this power if the Bank assesses that the CCP’s own arrangements for managing the defaulting clearing member’s (or members’) outstanding cleared positions are insufficient to liquidate, transfer, or otherwise appropriately rebalance the book. The Bank may perform a statutory tear up before, after, or alongside any tear up or other unexhausted powers available under the CCP’s rulebook for managing a defaulted clearing member’s positions.

34. A statutory tear up in resolution must be performed at a commercially reasonable price^{footnote [32]} and therefore does not reallocate losses from some clearing members to others nor generate resources for any reason, including the recapitalisation of the CCP. The performance of a statutory tear up by the Bank would therefore be distinct from any separate exercise of resolution powers to allocate outstanding losses or recapitalise the CCP in resolution once the tear up is executed. That loss allocation process would be subject to the NCWO safeguard and would be expected to be applied across all non-defaulted clearing members.

35. The resolution regime affords the Bank flexibility in setting the allocation and, to at least some extent, the scope of a tear up.^{footnote [33]} The Bank envisages that the scope of any tear up in resolution would in general be kept as narrow as is consistent with restoring a matched book in order to minimise its impact on surviving clearing members and broader financial markets.

36. Decisions on the scope and allocation of a tear up would be guided by what we consider would best advance the special resolution objectives. Where the CCP has a recovery PTU power, it would generally be expected to apply a pro-rata approach to allocating a tear up in which the tear up is distributed across non-defaulting clearing members and clearing accounts proportionally based on each of these accounts’ share of the holding of positions in contracts selected to be torn up. The Bank could choose to adopt that approach in resolution. Doing so would have the benefit of providing consistency and a greater level of predictability.

37. Where reasonably possible, we would gather information about the defaulted clearing member’s (or members’) positions and the market conditions prevailing at the time including information on the size of the market, the distribution of open positions in the instruments to be torn up across non-defaulting clearing members and the current market liquidity of those instruments. We would also be conscious that the ability of CCP users to risk manage a tear up could vary substantially. Given that CCP users may be holding cleared positions to hedge their respective risk exposures, a statutory tear up may give rise to liquidity strains, hedging disruptions, or distributional effects that could amplify market stress.

38. In taking those factors into account, there may be financial stability grounds for the Bank to consider whether a pro-rata approach, or an alternative approach, would be more appropriate when determining which contracts and clearing accounts are subject to tear up. The Bank could also consider whether the scope of a given tear up, that is the total size of cleared positions to be terminated, should differ from just the outstanding cleared positions held by the defaulting clearing member or members. In each case, the Bank would carefully assess the potential benefits and risks of any approach adopted, including, where relevant, the advantages of ex ante consistency and predictability associated with a pro rata approach.

3: CCP resolvability

3.1: Overview of the Bank’s underlying policy approach to CCP resolvability

39. In order to ensure that we are ready to use our powers if called upon to do so, we need to ensure that CCPs are ‘resolvable’. The UK resolution regime establishes a set of special resolution objectives for CCP resolution. These objectives, alongside the Bank of England’s statutory objective to protect and enhance the stability of the UK financial system, guide the Bank’s developing approach to securing CCP resolvability. The development of this approach is informed by FSB standards and engagement with international counterparts.

40. Our approach to assessing, and addressing, barriers to resolvability will be consistent with our SoP, The Bank of England’s power to direct a central counterparty to address impediments to resolvability. This sets out the approach that we would follow in the exercise of our power of direction to require CCPs to remove barriers to resolvability. The Bank would generally expect to use this power of direction only where it identifies an impediment which cannot be addressed effectively through engagement with the CCP.

41. Following our envisaged development, consultation and publication of CCP resolution expectations, CCPs would be expected to demonstrate to the Bank, if requested, that they have the necessary arrangements and capabilities to achieve the resolvability outcomes. While the Bank will need to maintain its assurance that CCPs continue to meet these outcomes, we have no intention to introduce a Resolvability Assessment Framework requiring periodic self-assessment and public disclosure of a type similar to that applied to systemic banks in the UK. CCPs are subject to prudent supervisory requirements and have extensive existing (and developing) resilience and recovery arrangements. There is therefore considerable overlap between the recovery tools available to CCPs under their rulebooks and the resolution tools available to the Bank in resolution.

42. In implementing a resolution, the Bank expects to place considerable reliance on the CCP’s existing operational arrangements, resilience, and recovery capabilities. Some resolution tools, such as the statutory tear up power, variation margin gains haircutting (VMGH) power, or write down of unsecured liabilities, can only be used effectively with the active participation of the CCP. Other tools may be deployed directly by the Bank without CCP involvement. Given the very low likelihood of a UK CCP requiring resolution, it would be inefficient for the Bank to maintain a separate infrastructure to process cash flows, manage cleared positions or generate CCP data in resolution, in addition to the CCP’s existing operational arrangements which can be used for these purpose. It would be similarly inefficient for clearing members and other CCP stakeholders to need to develop the capacity to interact with such systems in advance. Moreover, creating and utilising a separate infrastructure might introduce greater operational risks compared to leveraging the CCP’s established systems for payments (for example, to implement cash calls), VMGH, position management, and information exchange with clearing members.

43. Resolving a CCP is a tail-risk event, and each case is likely to be highly situation-specific. Nonetheless, it is possible that severe risks could crystallise rapidly, necessitating urgent and decisive intervention by the Bank as the resolution authority to stabilise the CCP, secure continuity of critical clearing services, and prevent wider contagion. In certain circumstances, and subject to the resolution conditions being satisfied, the Bank may need to place a CCP into resolution before its default management (where relevant) and recovery procedures had been fully exhausted. It is therefore important that the Bank has the operational and governance capacity to act rapidly, and that a CCP has the capabilities to support the Bank in executing an effective resolution.

3.2: Policy development and engagement on CCP resolvability

44. Based on our engagement with CCPs to date, our anticipation is that existing CCP recovery arrangements and capabilities will either meet or substantially contribute towards CCPs being able to meet the resolvability outcomes that the Bank is developing. If, however, the Bank assesses that a CCP needs to further develop an aspect of their resolution capabilities to meet the outcomes, the Bank will engage with the CCP and, where action is necessary, establish timelines for the CCP to enhance its capabilities that are proportionate to the size and nature of the risk to the Bank’s resolution objectives.

45. The Bank’s policy development on CCP resolvability is ongoing and will be informed by further engagement with industry and other stakeholders. Any expectations set by the Bank will only apply directly to CCPs incorporated in the UK, though actions taken to meet these expectations may indirectly affect CCP stakeholders such as users, owners, and service providers.

46. In setting out the outcomes in draft form in this DP, we invite comment from all stakeholders on the appropriateness, completeness and proportionality of the envisaged outcomes.

3.3: Draft core CCP resolvability outcomes

47. From our consideration of CCP resolvability to date, the Bank has identified three draft ‘resolvability outcomes’ we feel that it will likely be necessary for a CCP to achieve to be considered resolvable. These draft outcomes are set out below.

Resolvability outcome 1: CCP ability to deploy recovery and resolution tools available to the Bank

48. The CCP must have the operational, legal, governance and communications capabilities to promptly and accurately deploy the Bank’s CCP resolution tools^{footnote [34]} or any remaining recovery tools still available in resolution, upon the Bank’s instruction.

49. From our engagement with CCPs, the Bank has identified two deliverables to facilitate the achievement of resolvability outcome 1. These would require collaboration between the Bank and UK CCP:

• Development of a governance protocol between the Bank and the CCP: to agree a process (including communication templates, required levels of seniority for instructions, contact lists, etc) to enable the Bank to issue authoritative instructions to a CCP in resolution quickly and effectively.
• Development of template wording for the CCP to use when notifying clearing members that the CCP is taking action in resolution under instruction by the Bank, which could then be updated as necessary at the time of resolution to respond to the facts and circumstances at the time.

Resolvability outcome 2: CCP ability to secure the continuity of critical clearing services

50. The CCP must be able to seamlessly continue to provide (operate and risk manage) its critical clearing services in the run up to resolution, during resolution and after resolution.

51. This will include ensuring that any services (whether these are provided in-house, intragroup or are externally outsourced) necessary for the CCP to provide its critical clearing services will continue to be provided, that the CCP will maintain sufficient staff and management capability to operate its services and the CCP’s access to any critical FMI services it uses will be maintained. The CCP must also be able to reliably source sufficient liquidity to maintain its operations throughout the resolution period.

Resolvability outcome 3: CCP capacity to provide data, modelling and analytical capabilities

52. The CCP must have the operational capacity and legal ability to provide the Bank, HMT, and the Independent Valuer with timely access to adequate data, including confidential information, in a format and timeframe acceptable to the Bank, in order to inform and support the Bank’s analysis and decision-making in resolution. The CCP must also be able to support the production of modelled outputs, as required and specified by the Bank, to inform the Bank’s resolution decision-making.

4: Commenting on this DP and summary of questions

53. The Bank welcomes feedback on the questions posed in this DP from all interested parties. Comments should be sent to CCP.Resolution@bankofengland.co.uk by 4 September 2026.

54. Responses to the questions set out in this DP will inform the Bank’s further policy consideration of the three CCP resolution execution discussion topics and our developing approach to CCP resolvability.

55. Please indicate in your response if you believe any of the issues or proposals in this DP are likely to impact persons who share protected characteristics under the Equality Act 2010, and if so, please explain which groups and what the impact on such groups might be.

56. Please refer to our Privacy and the Bank of England page for more information.

5: Summary of discussion questions

57. The Bank is seeking views from interested parties on the following issues: