Today, FIA Global issued recommendations for assessing and managing risks that arise from central counterparty (CCP) clearing.
Since 2009, when the G20 committed to clear all standardized over-the-counter derivatives, CCPs have grown in their systemic importance in global financial markets and their role as a pillar of global financial reforms. As a result, there has been increased scrutiny of CCP risk from regulators and market participants. FIA Global’s position paper reflects the perspective of clearing members, and addresses the risks that CCPs bring to clearing members, their clients, and the market generally.
“Clearing members are uniquely positioned to assess central counterparty risk and recommend improvements in risk management,” said Walt Lukken, president and CEO of FIA Global. “In addition to allowing market participants to hedge risks through central clearing, our members also play an important role as a backstop in the event of a default. Our goal is to ensure that the risks of central clearing are both transparent and effectively managed.”
Highlights of FIA Global’s recommendations include:
1. Enhancing participants’ ability to assess CCP risk through consistent and transparent CCP disclosures.
2. Ensuring initial margin requirements are effective, transparent and predictable to all participants, and requiring CCPs to increase margin levels where they are determined to be inadequate.
3. Avoiding wind-downs and liquidations by prioritizing the continued operations of CCPs using clearly-defined loss allocation tools and effective resolution plans.
4. Reducing conflicts of interest, aligning incentives, and improving risk management through enhanced CCP governance.
The full position paper is available online here.
