Central counterparties (CCPs) and the law of default management

This article explores the legal framework around the process of ‘default management’ and explains its significance in the setting of central clearing. Having contextualised the discussion by considering central counterparties (CCPs) as default managers, and examined the safe harbours that CCPs enjoy from various provisions of insolvency law, the article considers the legal challenges arising along a ‘default timeline’ consisting of three different stages: declaration of default; close out; and collateral management. It finds that even in the context of central clearing, where robust default management is now of systemic importance to the financial system and the law is generally supportive, material risks remain and must be accounted for. The article suggests that while some of these risks may be mitigated by the parties, others require action from legislators, so addressing the fragmentary nature of the framework governing CCP default management should be a legislative priority