CCP Risk Assessments Did you know? CCPs will be taking on the burden of clearing much of the US $633.58 trillion OTC derivatives market, a market widely blamed for exacerbating the post 2007 global financial crises. This risk will be concentrated into CCPs; each CCP has its own way of operating, its own risk waterfall, within its distinct regulatory and legal framework, placing greater systemic risk upon each one. Overview End users are being forced into mandatory clearing at CCPs. How do you assess if these infrastructure institutions are fit for purpose? In response to G20 and supplementary initiatives regarding mandatory clearing, Thomas Murray Data Services established an industry-driven central counterparty (CCP) risk assessment programme. The service supports global regulatory imperatives to assess and monitor CCPs as risk concentrating vehicles. Thomas Murray Data Services has been performing risk assessments in the post-trade space for over 15 years and now we are working with major CCPs to compile comprehensive risk assessments that will enable our clients to understand every risk before selecting a clearing house. How is your margin calculated? Where does it go? What is your full, potential liability? How can a CCP mitigate your risk? Central clearing of OTC derivatives is well underway in the US with Phases I and II of the CFTC’s implementation having come into force. The EU is behind in terms of implementation, but mandatory clearing is expected to enter into force in late 2014. Issue There is huge potential for systemic risk in CCPs, and the consequences of a CCP failure could be very serious for you as a participant and the market at large. What happens to your collateral contribution in the event of a default? What happens to your open positions? If a major participant at the CCP goes into default, how quickly does your collateral come under threat? All of these questions, and more, are hugely important in making a decision as to which CCP(s) best fit your needs. Clearing houses operate within a competitive environment, a risk in itself, so you have choice and it is imperative that you make the right choice. You want robustness and a risk waterfall, plus margining requirements that you are comfortable with. There is a regulatory obligation upon clearing brokers to conduct operational reviews of the CCPs that they work with. This needs to be conducted annually and can be an onerous and expensive task. There is also a commercial imperative to benchmark each CCP, including its membership – the CCP is mutualising risk, but who else is in the group? Thomas Murray Data Services 1st Floor, 1 Farrier’s Yard, 77 Fulham Palace Road, Hammersmith, London W6 8AH Tel: +44 (0) 20 8600 2300 Email: [email protected]http://ds.thomasmurray.com Provider of Global Capital Market & Cash Data
Transcript
CCP Risk Assessments
Did you know?
CCPs will be taking on the burden of clearing much of the US $633.58 trillion OTC derivatives market, a market widely blamed for exacerbating the post 2007 global financial crises. This risk will be concentrated into CCPs; each CCP has its own way of operating, its own risk waterfall, within its distinct regulatory and legal framework, placing greater systemic risk upon each one.
OverviewEnd users are being forced into mandatory clearing at CCPs.
How do you assess if these infrastructure institutions are fit
for purpose? In response to G20 and supplementary initiatives
regarding mandatory clearing, Thomas Murray Data Services
established an industry-driven central counterparty (CCP) risk
assessment programme. The service supports global regulatory
imperatives to assess and monitor CCPs as risk concentrating
vehicles.
Thomas Murray Data Services has been performing risk
assessments in the post-trade space for over 15 years and now
we are working with major CCPs to compile comprehensive
risk assessments that will enable our clients to understand
every risk before selecting a clearing house. How is your margin
calculated? Where does it go? What is your full, potential
liability? How can a CCP mitigate your risk?
Central clearing of OTC derivatives is well underway in the US
with Phases I and II of the CFTC’s implementation having come
into force. The EU is behind in terms of implementation, but
mandatory clearing is expected to enter into force in late 2014.
IssueThere is huge potential for systemic risk in CCPs, and the
consequences of a CCP failure could be very serious for you as
a participant and the market at large. What happens to your
collateral contribution in the event of a default? What happens
to your open positions? If a major participant at the CCP goes
into default, how quickly does your collateral come under threat?
All of these questions, and more, are hugely important in
making a decision as to which CCP(s) best fit your needs.
Clearing houses operate within a competitive environment, a
risk in itself, so you have choice and it is imperative that you
make the right choice. You want robustness and a risk waterfall,
plus margining requirements that you are comfortable with.
There is a regulatory obligation upon clearing brokers to
conduct operational reviews of the CCPs that they work with.
This needs to be conducted annually and can be an onerous
and expensive task. There is also a commercial imperative to
benchmark each CCP, including its membership – the CCP is
