New York/London/Hong Kong/Singapore, 1 June 2015 – The Depository Trust & Clearing Corporation (DTCC), the premier post-trade market infrastructure for the global financial services industry, today issued a white paper outlining views on CCP governance, stress testing, default management and continuity of CCP services in times of market distress. DTCC’s paper, CCP Resiliency and Resources, contributes to an ongoing dialogue among CCPs, regulators and clearing participants concerning CCP risk management. DTCC operates two CCPs, the Fixed Income Clearing Corporation (FICC) and the National Securities Clearing Corporation (NSCC), both of which have been designated in the United States as Systemically Important Financial Market Utilities (SIFMUs). DTCC’s paper contributes the unique perspective of an industry-owned utility operating cash market CCPs in critical U.S. markets.
Risk Management Governance: DTCC highlights the alignment of its management and its clearing members in governing its risk management and default management processes and advocates for enhanced transparency and CCP rules that provide clarity and certainty for clearing members.
CCP Stress Testing: DTCC recommends that CCPs and regulators develop and implement a standardized stress testing framework to align the assumptions, parameters and governance of stress tests across central counterparties, while providing for customization to the particular risks faced by CCPs clearing different assets classes in diverse markets.
CCP Default Loss Waterfall: DTCC suggests moving its CCPs toward a guarantee fund structure combined with limited clearing member assessments that will enhance resources for its CCPs, while enhancing certainty for clearing members concerning their maximum exposures in a default caused by another clearing member.
DTCC’s paper outlines changes to its default loss waterfall structure that it intends to implement in the future for FICC and NSCC following further clearing member outreach and subject to regulatory approval. While FICC’s and NSCC’s current default loss waterfalls are designed to ensure that FICC and NSCC can withstand extreme conditions and limit systemic risks in any future market crisis, DTCC believes that a revised approach will provide greater certainty for clearing members and reflect an optimal approach for its market-owned utility CCPs.
“DTCC understands its role as a critical infrastructure provider and continually seeks opportunities to enhance its CCPs to promote market stability,” stated Murray Pozmanter, Managing Director and General Manager of DTCC’s SIFMUs. “We’re encouraged by the increased industry attention to CCP issues, and we want to ensure that DTCC’s perspectives can contribute to these ongoing discussions. We look forward to partnering with the industry and regulators on the appropriate next steps.”