From Risk Magazine, “Fed official slams ‘fantasy’ of CCP default management“:
“Five years from now, someone besides me will realise the default management process for cleared OTC derivatives begins to fall down as the number of OTC CCPs derivatives increases. The concept that 15 CCPs worldwide are all going to borrow human capital from the dealer community – all on the same day, for a week – to think this will somehow work is fantasy,” said John McPartland, senior policy adviser at the Federal Reserve Bank of Chicago. McPartland was speaking on October 14 at Risk’s Derivatives Clearing Europe conference in London, and stressed his comments were personal opinions.
Also from the article:
One London-based head of OTC clearing shares McPartland’s concerns: “You now find yourself dealing with half a dozen or more CCPs, each of which will have its own operational process, each of which will have its separate auction process, and none of which will have day-to-day in-house expertise to actually trade a portfolio. So if a big clearing member that happened to be a member of all those CCPs were to default then we would be looking at a very ugly process. That’s something we are very concerned about and we have put a lot of thinking behind that to make sure we understand exactly what our obligations are.”