CGFS: The macrofinancial implications of alternative configurations for access to central counterparties in OTC derivatives markets

November 17, 2011

The Committee on the Global Financial System (CGFS) has today released a report on The macrofinancial implications of alternative configurations for access to central counterparties in OTC derivatives markets. It was prepared by a study group chaired by Timothy Lane of the Bank of Canada.

Various alternative access arrangements are under consideration for the central clearing of OTC derivatives trades. Several jurisdictions are exploring the establishment of domestic central counterparties (CCPs) and the possible benefits of establishing links between them.

The conditions under which market participants obtain access to central clearing could have important implications for financial stability and efficiency. The report concludes that:

• expanding direct access to CCPs may reduce the concentration of risk in the largest global dealers. As direct access is broadened, it is essential that CCPs' risk management procedures be adapted appropriately to ensure their continued effectiveness;
• both large global and smaller regional or domestic CCPs will probably play a role in meeting G20 commitments. In both cases, developing and adopting international standards will be essential to avoid regulatory arbitrage and promote effective cross-border monitoring of infrastructure and participants; and
• CCPs and authorities should consider enhancements where needed to strengthen the safety and efficiency of indirect clearing that comply with international standards. Effective segregation, as well as portability of positions and collateral belonging to a direct clearer's clients, will be needed to realise the benefits of systemic risk reduction.

CGFS Chairman Mark Carney, in presenting the report, said that it "provides relevant and timely input to international initiatives related to CCP access arrangements and configurations."