WHAT IS THIS? A central counterparty (CCP) manages default risk by collecting initial and variation margin from both parties to a trade. Spill-over losses are absorbed via a default fund to which all members contribute – introducing a degree of mutualised risk – and by the CCP’s own capital. The concept is an old one that was extended to over-the-counter derivatives in the aftermath of the financial crisis.
CCPs with EU bank licences currently run leverage ratios of less than half the minimum
Three factors slashed size of book by 25%, including move to treat margin as settlement
Stability, oversight, Parisian ambition, repo haircuts: LCH is under attack from all sides
Questions about post-Brexit status of UK CCP could spark mass migration – and severe volatility
Quants propose technique to generate effective, plausible CCP stress-testing scenarios
Two CCPs report interest from LCH customers; banks expect first book transfers in early 2018
CCP’s risk managers propose a framework for generating extreme but plausible stress scenarios
Dodd-Frank leaves legal uncertainty, but proposed alternatives could be even worse
Capital framework hurts clearing resilience, Citi execs argue
This paper is meant to serve as a comparison of the approaches and margin models employed by CCPs.
This paper discusses the different approaches to incorporating market liquidity risk within a CCP’s default waterfall and the challenges that these approaches pose.
This paper presents a new approach to parameter selection based on the statistical properties of the worst loss over a margin period of risk estimated by the margin model under scrutiny.
This paper proposes a performance test based on empirical similarity that would account for margin shortfall, procyclicality and efficiency in a single score.
In this paper, the authors address one aspect of CCP risk management: initial margining practices. The paper provides a historical review of margining at selected CCPs as well as an overview of their current margin policies.
New FSB analysis reveals interdependencies of clearing system
Fragmentation of market-based finance could raise costs and risk for EU and UK companies
Powell implies support for practice that saved UBS $300m in capital
CCP clamps down on bond-for-cash switches driven by reporting and quarter-end repo spikes
Brexit heightens concern over importance of central counterparties
CFTC hearing warns of increased margining costs and a pre-Brexit client onboarding crunch
Some firms may stop clearing US Treasury trades if the CCLF is implemented
Proposals give central bank and regulator the power to bar biggest third-country CCPs
Eurex set to challenge LCH estimates of clearing relocation costs
CCP members must offer new arrangements for exchange-traded derivatives in January 2018