(This note is not part of the Regulations)
These Regulations make provision relating to the use by the Bank of England (“the Bank”) of cash call instruments, as provided for in paragraph 32 of Schedule 11 to the Financial Services and Markets Act 2023 (c. 29) (cash call power), in relation to the clearing members of a central counterparty (“CCP”) which is in resolution. The Bank’s cash call power enables the Bank to make cash call instruments requiring one or more clearing members of a CCP to pay an amount in cash to the CCP. The Bank can require any clearing member to make a payment under a cash call instrument, whether or not that clearing member caused or contributed to any loss incurred by the CCP. Under paragraph 32(3) of Schedule 11, the Treasury may make regulations containing provision for calculating the maximum cash amount that may be specified for the purposes of the cash call power, and to specify circumstances in which the Bank may require a CCP to use specified funds of specified clearing members to satisfy all or part of that member’s obligations under a cash call instrument.
Regulation 2 specifies the maximum amount of cash that a clearing member may be required to pay to a CCP under cash call instruments made where a CCP has incurred default loss (as defined in regulation 1(4)). The maximum amount is calculated by reference to the contributions made by a clearing member to prefunded default funds maintained by the CCP (“prefunded default fund” is defined in regulation 1(4)). A clearing member may be required to pay up to two times the amount of its contributions to the prefunded default fund maintained by the CCP in relation to the class, or classes, of instruments to which the loss relates (being the “relevant prefunded default fund”, as defined in regulation 1(4)). If there is more than one relevant prefunded default fund, regulation 2(3) provides that this limit is to be calculated separately in relation to each prefunded default fund to which the clearing member is required to contribute.
Regulation 3 specifies the maximum amount of cash that may be specified in cash call instruments which are made in circumstances where the CCP has incurred any other loss (“non-default loss”, as defined in regulation 1(4)), for example, due to an operational event. A clearing member may be required to pay up to three times the amount of its contributions to all prefunded default funds maintained by the CCP.
Regulation 4 provides that, if there should be more than one resolution in respect of the CCP, the maximum amounts set out in these Regulations apply separately to each resolution.
Regulation 5 specifies the circumstances in which the Bank may require that certain funds (“specified funds”, as defined in regulation 1(4)) held by the CCP are to be used to meet the obligations imposed on a clearing member under a cash call instrument, if a clearing member fails to comply with its obligations under that cash call instrument. Regulation 5(2) provides that the Bank may specify the type (or types) of specified funds that are to be used, the order in which they are to be used, or provide that the CCP has discretion as to which funds are to be used.
A full impact assessment has not been produced for this instrument as no, or no significant, impact on the private, voluntary or public sector is foreseen. A de minimis impact assessment is available from HM Treasury, 1 Horse Guards Road, London, SW1A 2HQ and is published with the Explanatory Memorandum alongside this instrument on www.legislation.gov.uk.