FIA: Mapping Clearing Interdependencies and Systemic Risk

Global regulators are becoming increasingly aware of the importance of market infrastructures in the systemic risk topography. In particular, regulators are recognizing the need to understand the interconnections between clearinghouses and their members, which have the potential to transmit the shocks from a default or operational incident in unexpected ways. In this article, two experts on network theory show how this type of data analytics can provide regulators and market participants with a better understanding of the connections within the global clearing system.

Advances in data analytics provide market regulators with better tools to understand connections within financial systems. One example is “interconnectivity” among participants in the global derivatives markets, and in particular, the clearinghouses that now process the majority of derivatives transactions worldwide.

These clearinghouses, also known as central counterparties, have become an important part of the financial landscape. They help protect the stability of the financial system by reducing counterparty, operational, market, legal, settlement, and default risk for market participants. However, CCPs also concentrate risks, and their financial and operational soundness is critical for the smooth functioning of the financial system. In addition, CCPs rely on their members to provide the majority of their financial resources. Many of these clearing members belong to multiple clearinghouses, so the landscape of clearinghouses and their members is highly interconnected.

The full article is available at

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