Repo and CCP Client Clearing
Finadium
February 2021
Finadium and independent consultant Richard Comotto have partnered to produce this in-depth analysis of CCP repo clearing models, drawing on professional experience and with the support of CCP operators.
Client clearing is when a central counterparty (CCP) guarantees transactions executed between its traditional dealer members and those members’ clients. We identify three operational models in North America and Europe, and assess the mechanics and success of client clearing across six CCP operational platforms run by DTCC, Eurex, LCH and the Canadian Derivatives Clearing Corporation. We conclude with an evaluation of each program and examine lessons for regulators, CCPs, dealers and clients.
Client clearing is well established in the derivatives market. Has the time come at last for something similar in the repo market? After a slow burn, the Sponsored DVP Repo Service operated by the Depository Trust and Clearing Corporation (DTCC) saw traction in the US starting in 2017. This has revived hopes that similar facilities might succeed in Europe as well. But even if Sponsored DVP is successful, will this have been due to circumstances unique to the US repo market?
This report should be read by repo market participants engaged in trading in North America and Europe. By putting client clearing in operational context across multiple programs, the report can help market professionals assess their options and incentives in the repo clearing space.
Table of Contents
- Executive Summary
- Who Needs Client Clearing?
- – Regulation and Revenue
- – Obstacles Remain
- Client Clearing Models
- – One-Way Indirect Access
- – Full Sponsorship
- – Limited Sponsorship
- Success of Client Clearing Across the Providers
- – DTCC Sponsored DVP and CCIT
- – Eurex Select Invest and Eurex Repo Select Finance
- – LCH Sponsored Clearing
- – CDCC Limited Clearing
- Client Clearing vs. Central Bank Liquidity
- About the Author
- About Finadium LLC