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.

Confusion reigns over the US Dodd-Frank Act

Section 716 of the Dodd-Frank Act will force swap dealers to hive off certain derivatives businesses into separate affiliates. But the legislation is fiendishly complicated, riddled with oversights and requires daring interpretative leaps, which has left…

Euro debt crisis prompts questions over collateral

European financial markets have been turned upside down by the sovereign debt crisis, with eurozone government bonds no longer regarded as completely risk-free. As a result, dealers are more wary of the correlation inherent in collateral denominated in…

The end for one-way CSAs

Sovereign derivatives users have been able to avoid posting collateral to their dealer counterparties in the past, but pending reforms to bank capital and funding rules are changing the equation. If sovereigns refuse to budge, they will have to accept…

Lufthansa wary of OTC regulations

Corporates across the globe have lobbied to ensure end-users are not subjected to new clearing requirements for derivatives. For Lufthansa’s treasury department in Frankfurt, ensuring it is able to continue to hedge its foreign exchange and interest rate…

Clearing dilemma for CCPs

Dealers have made progress towards clearing swaths of the over-the-counter derivatives market. But market participants are likely to have to clear more awkward products to satisfy regulators’ demands. Mark Pengelly investigates

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