[ESMA91-372-206 ] Guidelines on the methodology to be used by the resolution authority for determining the valuation of contracts prior to their termination as referred to in Article 29(1) of CCPRRR

ESMA published the “Guidelines on the methodology to be used by the resolution authority for determining the valuation of contracts prior to their termination as referred to in Article 29(1) of CCPRRR“, specifying the process, scope, and various factors to consider when valuing contracts.
The guidelines apply to resolution authorities and are based on Article 29(1) of CCPRRR, the objective is to promote convergence of supervisory and resolution practices in valuing contracts. The guidelines cover topics such as the valuation process, scope of contracts to be valued, valuation based on CCP rules, decision to use alternative price discovery methods, requirement to provide information, and assessment by the resolution authority.
The resolution authority should require the CCP under resolution to value each contract to be terminated based on a termination amount reflecting current exposure. The termination price should be determined as a fair market price, considering the economic equivalent and option rights of the parties involved. The valuation methodology should take into account CCP rules and arrangements, but the resolution authority may use alternative methods if necessary.