CCP
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.
Capital responses, CCP losses and buffer worries
The week on Risk.net, March 14–20, 2020
Coronavirus rout revives attacks on futures margining
FCMs call for permanently higher margins following “unprecedented” number of breaches
Banks rail against China CCPs’ loss-sharing policy
Controversial loss allocation technique remains unused during recent market routs, but banks want it banned
Of rats and men: would member compensation imperil CCPs?
CCPs and members split over whether compensation after default losses is moral hazard or fair
Oil price shock triggers big margin calls
Banks and exchanges worked through weekend in anticipation of oil collapse
Swaps data: cleared volumes drop for all markets – except FX
Smaller CCPs make market share gains in a quarter of double-digit declines for rates and credit
Apac CCPs: we’ve come a long, long way together
Members still gripe about arcane policies, but risk management fundamentals are strong
The UK’s path to EU equivalence: détente or detour?
Race to meet post-Brexit cross-border trading requirements will go down to the wire
ECB mulls wider clearing house access to account facilities
Including CCPs in the Eurosystem may remove the need for them to seek a banking licence
Dealers cast doubt on swaptions compensation plans
Redress scheme for victims of post-Libor valuation change may fail due to “cherry-picking” fears
CME, Eurex rebuff calls to compensate members for losses
BlackRock and BNP want CCPs that recover from a default to reimburse members and clients
Clearing members in cash clash with Apac CCPs
Banks and clearing houses wrangle over who should pay for losses on invested collateral
BNP leads a comeback for Europe’s clearers
Brexit, leverage ratio tweaks and concentration fears could help European banks compete with US FCMs
Interdependencies in the euro area derivatives clearing network: a multilayer network approach
This paper provides insight into how the collected data pursuant to the EMIR can be used to shed light on the complex network of interrelations underlying the financial markets.
Credit data: a sharp turning point in CCP credit risk
The credit risk of CCPs is worsening, even as margin requirements rise, writes David Carruthers
Watch out for Brexit cliff edge 2.0, experts warn
Measures to mitigate a sharp rupture for financial services could be less likely at end-2020
Supervisory stress testing for central counterparties: a macroprudential, two-tier approach
This paper examines the role of supervisory stress testing of central counterparties (CCPs). A key message is that the design of supervisory stress tests (SSTs) should be tailored to CCPs’ roles, risk profiles and financial structures.
OCC updates default auction rules to encourage buy-side bids
Clearer’s proposed changes follow client fears of being locked out
LCH targets hardwired pre-cessation triggers
Proposal aims to align transfer pricing for cleared and bilateral markets in the event of split on ‘zombie Libor’ triggers
EU council dials back on margin haircuts for CCP resolution
Lawmakers close avenues for regulators to dip into non-defaulting members’ initial margin
Signing the Libor fallback protocol: a cautionary tale
As Orwell’s Room 101 beckons for Libor publication, muRisQ Advisory’s Marc Henrard warns of a potential pitfall in the fallback protocol
Inside top CCPs’ default funds
Central banks favoured by CCPs to hold default resources
Podcast: Andrew Dickinson on CCPs’ defence mechanisms
Trades’ size limits, membership rules and more transparency key to avoid another CCP default
CCP risks, Sonia shift and CVA carve-out
The week on Risk.net, January 4–10, 2020