The ICMA European Repo and Collateral Council has sponsored a short study, authored by John Burke, on the trade registration models used by European central counterparties (CCPs) for repo transactions. This focuses on a specific issue (“the counterparty gap”) that emerged from a broader analysis of CCPs’ trade registration models. The issue relates to risk borne by market participants arising from different trade registration models and the different timings and procedures used by the CCPs to manage trade acceptance and trade rejection scenarios. The analysis covers trades that are executed via automated trading systems, traded bilaterally or executed on a name give-up basis via voice brokers.
The study contains recommendations from the ICMA ERCC on a number of changes to market best practice that, when adopted, could reduce the risk to market participants arising from the counterparty gap issue. By working together now to clarify the position regarding the counterparty gap issue, market participants and infrastructure providers will achieve an enhanced operating and risk management environment for CCP cleared business and ensure that any future increase in CCP activity e.g. for Dealer to Client trades, can be managed more comfortably.
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