Central bankers and securities regulators have issued a set of proposed recommendations for managing risk in central counterparty clearing (CCP) systems.
The new rules have been drafted by the Task Force on Securities Settlement Systems, under the auspices of the Bank for International Settlements and Iosco, in response to the growing use of CCPs in the financial markets.
A CCP interposes itself between counterparties in financial transactions, becoming the buyer to the seller and the seller to the buyer. Although the CCP is designed to reduce the risk faced by participants, it also concentrates risks and responsibilities for risk management.
As the Task Force notes: "The effectiveness of a CCP’s risk control and the adequacy of its financial resources are critical aspects of the infrastructure of the markets it serves."
The report contains 14 main recommendations that cover the major types of risks CCPs face, including: legal, operational, custody and investment risks, participation and collateral requirements, financial resources, default procedures, money settlements, physical deliveries, links between CCPs, efficiency, governance, transparency, and regulation and oversight. It also includes a methodology for assessing implementation of the recommendations.
The Task Force concluded that individual national authorities should make judgments about the application of particular recommendations to intermediaries that act as gateways to the CCP for other market participants, but that the recommendations need not be applied to such participants in every jurisdiction.
A 9 June deadline has been set for public comment on the recommendations.