01 Dec 2008, Sponsored Q&A, Risk magazine
Risk: Does moving to a central clearing house address the industry's concerns?
Helen Bramley: In light of recent events, it may be viewed that a central clearing house would have provided information on the net exposure of the major dealers and could have ensured the posting of additional collateral as the market conditions moved. Clearing houses also generally allow netting, increasing efficiency of capital and therefore reducing liquidity pressure. To some extent, moving to a central clearing house would lessen the burden on credit departments as it would monitor its participants' credit rating and provide the benefit of removing counterparty risk. However, this move has the potential to reduce the risks to its participants and creates a concentration of risk management responsibilities, which could itself disrupt the market. It is therefore vital that there is clear regulation, control and transparency and standardisation of contract terms for all participants.