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.

Risk corporate survey 2010

Price is still the most important factor for corporates when choosing which dealer to trade with. However, a wide divergence in pricing among banks means transparency is now a key issue. By Matt Cameron, with additional research by Alexander Campbell,…

Future options

Tomorrow’s derivatives market looks likely to shift away from exotic products to focus more heavily on centrally cleared vanilla trades. Dealers hope to see a big jump in volumes, which will offset a smaller decline in margins. They also have an eye on…

Hitting the groundwork

As head of the EC’s financial markets infrastructure unit, Patrick Pearson is leading the effort to draw up new European legislation for derivatives. He talks to Risk about the progress of that effort and the importance of aligning the rules with similar…

Counterparty charge an act too far?

The Basel Committee shocked many bankers in December by unleashing proposals to significantly increase capital requirements for counterparty risk exposures. But industry participants argue the measures overlap with each other and could hike up capital to…

To be clear on OTC regulation

The US House of Representatives passed a bill on December 11 requiring all standardised derivatives contracts traded between dealers and major swap participants to clear through a registered clearing organisation. The Senate is preparing to debate its…

The CME Icebreaker

The Chicago Mercantile Exchange launched a clearing service for credit default swaps on December 15, with several major dealers and buy-side firms as founding members. Will it capture market share from rival IntercontinentalExchange? By Alastair Marsh

Capital increase

Exposures to counterparty credit risk have been scrutinised by the Basel Committee on Banking Supervision, which published proposals designed to increase capital requirements in the middle of December. The measures will be completed and implemented by…

Moral hazards for CCPs

Derivatives practitioners fear the political push for central clearing of standardised contracts could create a moral hazard, as clearing platforms might compromise their risk management standards to create a more competitive service. How are regulators…

Stuck in the muddle

Regulators in the US and Europe are making efforts to extend central clearing to all asset classes. However, dealers argue that central clearing does not make sense for foreign exchange. By Alastair Marsh

Corporate concessions

Corporates have argued initiatives to introduce over-the-counter derivatives regulation in the US and Europe will severely hamper their ability to hedge. After an intensive lobbying effort, the politicians appear to be listening. Matt Cameron reports

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