What’s the real risk of CCPs, counterparty risk or liquidity risk?
A recently issued academic paper from Dr. Rama Cont at Imperial College London makes the argument that CCPs don’t mitigate counterparty credit risk, they just transform it into liquidity risk. As a result, the best thing to do is assess whether a CCP is holding enough assets in its risk waterfall to account for liquidation costs. What does this mean for securities finance? This content requires registration. Get access today by signing up here.