Recovery and Resolution

Recovery and resolution refer to the plans and processes that a clearing house must have in place to manage its own financial distress or failure. Recovery involves the measures taken by the clearing house itself to restore its financial viability, such as calling for more capital from members or adjusting position sizes.

Resolution, on the other hand, is the process led by regulatory authorities to manage the orderly wind-down of a failing clearing house. The goal of both is to minimize the impact on the broader financial system and prevent contagion.

These plans must be transparent, actionable, and tested regularly. They address how to maintain critical services, transfer positions to other clearing houses, and distribute losses in a fair manner.

For crypto-native protocols, these frameworks are increasingly important as they grow in size and influence. Without a clear path to recovery or resolution, a failing clearing house could cause significant disruption.