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.
Derivatives client clearer of the year: JP Morgan
Risk Awards 2021: bank avoided tech snags and margin call surprises that plagued peers during crisis
Clearing house of the year: Eurex Clearing
Risk Awards 2021: clearer’s Prisma margin model proves its mettle in year of market tumult
Futures industry weighs need for new post-trade utility
Three large FCMs say standardising trade allocations could prevent a repeat of breaks seen during Covid volatility
UK Treasury opens door to ditching Mifid open access rules
Champion of competition in derivatives clearing may throw in the towel
LCH Ltd sent record €6bn VM call to one clearing member in Q3
Largest estimated payment obligation in the event of a member default also climbs quarter on quarter
European regulators issue Brexit relief for UK pension funds
Some EU watchdogs are not enforcing mandatory clearing for trades between region’s banks and UK pension schemes
Top CCPs invest little clearing member cash in securities
Cash payments of initial margin and default fund contributions are typically placed with central banks
Don’t blame CCPs’ models for Covid margin spikes – WFE
Lobby group counters popular view that tools could ease procyclicality; puts focus on liquidity management
At LCH Ltd, IM levels edged lower in Q3
Peak aggregate initial margin call for equities fund hit £3 billion
Initial margin at the OCC leapt 20% in Q3
Cleared options contract volumes hit 1.9 billion in Q3
Can CCPs zone in on improved margin buffers?
Dynamically adjusting margin add-ons could reduce cyclical funding demands
FCMs fret over S&P 500 options settlement changes
Dealers say CME, Cboe settlement time shift for S&P 500-linked options causes risk management headache
Brazil’s BM&F in 1999: a central counterparty near-failure case?
The authors argue that, despite some concerns on systemic risk expressed by high-level Banco Central do Brasil officers, the (potential) defaults of Marka and FonteCindam would not have been sufficient to lead BM&F to a failure.
Direct clearing could solve CCP concentration risk
Allowing more clients to self-clear can reduce CCPs’ reliance on a few firms, says ex-Chicago Fed adviser
Regulators’ margin model rules too lax – BlackRock exec
Risk USA: EU anti-procyclicality rules like “putting a curtain over a draughty window”
UBS gears up for another tilt at clearing
Swiss bank makes senior hires and upgrades tech platform ahead of Brexit and leverage offset
SOFR trading tails off after ‘big bang’ boost
Volumes peak, then slow down on CCPs’ shift to new RFR, but remain above 2020 averages
Toward reducing the operational risk of emerging technologies adoption in central counterparties through end-to-end testing
This paper discusses the software-testing challenges of traditional central counterparties as well as the risks, biases and problems related to new technologies. It also outlines a set of requirements for an end-to-end validation and verification…
Regulators should set ‘guidelines’ for CCP margins – Kemp
Citi’s former clearing head says CCPs are still competing on margin
CFTC’s swap stay plan for clearing houses sparks alarm
Lawyers warn proposal could invalidate close-out netting and expose members to higher risks
Concentration in cleared derivatives: the case for broadening access to direct central counterparty clearing
In this paper, the authors explore the benefits and challenges of encouraging major end-users of derivatives to become direct clearing members of central counterparties (CCPs).
Euro inflation CCP basis expected as Eurex taps buy side
First crop of Eurex inflation swaps trade flat to LCH, but traders predict four-basis point difference as activity builds
Too much, too young: improving the client clearing mandate
We present new evidence of the distribution of risk in client portfolios and use this to motivate clearing policy improvements.
CCP discount switch drives record SOFR swap volumes
Historic move off fed funds discounting leads to trading surge