BRUSSELS (Reuters) – The European Commission may draw up rules for rescuing and closing down failing clearing houses and insurers, as regulators across the world seek to prevent collapsed businesses from wreaking havoc in financial markets.
Clearing houses and insurers, which are critical for the daily running of financial markets, already handle huge volumes of trades and some of them will soon take on new trades worth over $600 trillion.
Clearing houses, such LCH.Clearnet and Deutsche Boerse's Eurex Clearing, sit between the parties at either end of a trade to ensure it is completed.
They protect companies from default because they hold collateral on behalf of their numerous members that can be used to reimburse individual firms if one member becomes insolvent – a standard model used in various exchange-traded markets around the world.
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