New Public Disclosures Shed Light on Central Counterparties
Reforms after the financial crisis of 2007-09 promote the use of central counterparties (CCPs) to improve transparency in derivatives markets. CCPs stand between the two parties to a derivatives contract. Unlike in bilateral trades, the two trading parties are not directly exposed to the other’s default. The increasing role of CCPs has focused attention on their potential risks and benefits. This OFR viewpoint examines data that CCPs began to report in 2016 to comply with international guidelines. Although the data shed light on the activities, financial condition, and risk management of CCPs, shortcomings in the data remain.
The disclosures show that CCPs hold sufficient resources to withstand losses from the defaults of two clearing members. Also, the disclosures show that such resources are highly liquid. CCPs report only a few cases of existing margin being insufficient to cover margin calls.
The full paper is available at https://www.financialresearch.gov/viewpoint-papers/files/OFRvp_17-02_CCP-Data.pdf