Regulators must equip themselves with tools such as "bail-in" bonds to deal quickly with a failed clearing house for stocks, bonds or derivatives without having to call on taxpayers for cash, the G20's risk watchdog said on Thursday.
After the global financial crisis of 2007-09, regulators mandated clearing for a wider range of derivatives, meaning they must pass through a clearer backed by a default fund to ensure completion of trades.
More recently, the United States adopted rules to force more trades in the $26 trillion U.S. Treasury market through clearers. As a result of such changes, some clearers have become vital to financial systems in more than one jurisdiction, meaning their failure could damage financial stability unless they can be stabilized or "resolved", meaning closed down, in an orderly way.
The Financial Stability Board (FSB) said its new standard, which builds on previous guidance, requires that adequate liquidity, loss-absorbing, and recapitalization resources and tools are available to maintain the continuity of a clearer's critical functions, and mitigate adverse effects on financial stability should a shutdown become necessary.
It sets out seven resources and tools that regulators are required to pick from, such as "bail-in" bonds issued by clearers that can be written down to plug losses, resolution funds, cash calls during resolution, and equity in a first-loss position in resolution.
Regulators will have to state publicly which tools they have selected. Laws could need changing or introducing in some countries to give regulators access to such tools.
"Temporary public funding for liquidity ... should be relied on only as a last resort," the FSB said.
Exchanges such as LSEG, ICE, CME and Deutsche Boerse all operate major clearing houses that handle trades totaling trillions of dollars.
The G20 economies commit to applying regulatory recommendations from the FSB, and the watchdog said it would monitor implementation and publish its findings.
HAL TURNER SNAP ANALYSIS
In my opinion, the fact that this news has come out publicly should be an earth-shattering red-flag to everyone. It seems to me, they don't tell Regulators to "prepare to handle FAILED CLEARING HOUSES" unless they already know that MORE THAN ONE is failing.
Now, which one(s)?
The fact that this guidance from the Financial Stability Board has now been made public, I think is their way of telling those who need to know, something is terribly wrong with more than one clearing house . . . . and I think it likely signals those in-the-know, to get out and get out fast.
If time was not of the essence, they would not have needed to make this public. They could have spread the word quietly. Discreetly. So, in my personal opinion, whatever is about to happen is going to be staggering. I think, they know it's coming. I think, they know it can't be stopped. I also think they don't have enough time to tell people quietly, so they've issued this . . . . . ahem . . . . . "guidance."
Thankfully, I do not own any stock, bonds, or derivatives. But people with Retirement accounts do. People on Pensions rely on those Pension Funds to get cash out of stocks to pay their pension. And that right there, is the big rub. Pensions hold stocks. When they need to sell some to put out Pension checks, they sell, their stock goes to the clearing house, the buyer sends cash to the clearing house and . . . . theoretically . . . the clearing house sends the cash to the Pension Fund.
In general, a clearing house is sent stocks or bonds to be "settled." The entity settling sends the funds to the clearing house, to be forwarded onto the seller.
BUT . . . . if the clearing house is bust, the money the seller was __supposed to__ get, never comes from the clearing house. They keep it. Hence, they failed.
If Pension plans can't get cash, they can't pay pension checks. See how that works?
I am no financial expert and I am not licensed in any financial field. I cannot, and am not, giving any financial advice. But even I, a Layman, can see the writing on THIS wall. Some BIG clearing house(s) are about to fail.
If I had funds in anything that needed to be cleared, I would get mine out. What you do is your business and your responsibility. You should consult with a licensed financial expert before making ANY financial decisions.
I have a feeling something wicked this way comes.
