Risk: Do you think the dealers will meet the July 31 deadline to move to central clearing?
Mario Nava: I think it will not be easy, but I'm still optimistic because I witness that companies are very much engaged in the process. All the steps that were foreseen since the beginning have now been made. Major changes were made last month for the North American market and the dealers are working to make sure we have the equivalent in Europe. For the time being I see no slippage, but we are still more than two months away from the deadline.
Risk: How do you react to recent claims by Darrell Duffie at the Stanford Graduate School of Business that the benefits of central clearing would be diluted by having multiple clearing houses?
MN: When you pass from bilateral netting to having four central counterparties (CCPs), it increases the stability of the system and reduces counterparty risk. But having only one CCP is excessively risky for the whole system and that's essentially what supervisors have argued. If you reduce efficiency a little but you gain stability, that's something we are willing to do. The Stanford paper argues that you cannot have multiple clearing houses if they only clear one asset class. We fully agree and have no problem with the idea that CCPs should clear more than one asset class.
Risk: How advanced are the plans to move other asset classes onto central clearing platforms?
MN: We are looking at all the asset classes. CDS is the only one that is only OTC, while others are partly on-exchange. There is already some clearing in each of the other asset classes and the issue is more whether it should be expanded.
Risk: How soon do you think clearing houses will move to other asset classes?
MN: That depends very much on the clearing houses; for the time being we have four contenders and they can expand, merge or diminish. We are not in the business of fixing the market's structural governance; we're only in the business of making good rules. We are not pushing the CCPs to other asset classes because these are business decisions they must make on their own. We take note of what the economic academia and the industry says.
Risk: There has been some talk about creating a central trade repository for all OTC derivatives as a means of increasing transparency and allowing regulators to better spot systemic weaknesses. Is this something you are working on?
MN: The Committee of European Securities Regulators is undergoing a feasibility study on the trade repository and we look forward to the results of that study because a repository responds to the issue of transparency, which is crucial for regulators and legislators alike. But to reduce counterparty risk, you need something more than a repository - you need a CCP and dealer commitment to use it. That's why at the Commission we are pressing hardest for having a CCP at the moment.See also: Liffe awaits CDS clearing trade
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