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.
Liability-side pricing of swaps
Wujiang Lou presents a framework to compute recursive CVA and FVA via Monte Carlo simulation
Eurex margin flaws claimed in Swedish bank collapse case
CCP failed to properly capture vega, strike and wing risk, expert report claims
Why raiding CCPs’ initial margin would be bad policy
A wounded CCP should not have a claim on users’ assets, says hedge fund group
Europe will open gates to US CCPs, says Massad
CFTC adopts substituted compliance for European CCPs; US clearers still waiting on Esma approval
US end-users risk tax hit in move to daily settled swaps
Changing treatment of variation margin could benefit banks, but hurt clients
Central counterparties and banks: vive la difference
This paper highlight the key differences between CCPs and banks in terms of roles, risk profiles, balance sheets and systemic characteristics, and the implications of these differences for CCP risk management and regulation.
“Incomplete demutualization” and financial market infrastructure: central counterparty ownership and governance after the crisis of 2008–9
This paper examines risk management governance challenges of the demutualized CCP ownership model and the incentives faced by “incomplete demutualization”, where clearing members remain the ultimate underwriters of CCP default risk.
Skin in the game: central counterparty risk controls and incentives
The authors discuss the incentives created by the structure of CCPs’ default waterfalls, drawing out the role of transparency and governance in ensuring effective incentives.
EC urged to target initial margin for CCP recovery
Irish central banker says haircuts should be seen as temporary loans to CCPs in a crisis
CCPs must be able to haircut initial margin in a crisis
Initial margin is the best source of liquidity for CCPs in a crisis, argues Irish central banker
Central counterparties need thicker skins
The paper makes an important contribution to this ongoing dialogue by proposing a set of principles and an analytical framework for calibrating skin-in-the-game contributions.
CCPs face pressure to deal with cyber security threats
Regulators and clearing members urge central counterparties to do more to guard against attacks
CME set to launch swaptions clearing in Q2
Uncleared margin rules the driver; may also impact CME-LCH basis
Central counterparties in crisis: International Commodities Clearing House, New Zealand Futures and Options Exchange and the Stephen Francis Affair
This paper highlights the vulnerability of CCPs to large concentrated positions that may be difficult or impossible to close out.
LME Clear ‘welcomes scrutiny’ of CCP risk management
Oversight from clearing members is good for central counterparties, says LME Clear CEO
Accounting puts brake on move to daily settled swaps
New margin approach threatens hedge accounting status, could hurt effectiveness
Pensions industry says permanent Emir exemption not enough
European Parliament and UK regulator push for carve-out, but industry unimpressed
CCPs seen as reluctant to report cyber attacks
Clearing houses urged to share information in aftermath of cyber security lapses
Firms weigh impact of blockchain on post-trade services
Opportunity for using distributed ledgers in OTC market discussed at meeting held by CFTC
Tensions at for-profit CCPs could put them at risk
Demutualised CCPs must find a way to keep clearing members engaged in risk management
EU-US clearing deal ‘good enough’ to avoid CME exodus
Banks had planned to quit US clearer on February 21
Mixed industry reaction to Moody’s CCP ratings
Clearing members say narrow definition of default may limit ratings’ usefulness
Cyber risks are silent, deadly and often mundane
Fear of submarine-like attack overshadows more dangerous, less scary cyber threats