WFE: no skin-in-the-game for CCPs

Global Exchanges Publish Position Paper on Key CCP Risk Management, Recovery and Resolution Issues

Doha, 21 October 2015

  • WFE paper points to strong CCP track record of managing market events, noting they are best placed to manage distinct risks within specific markets
  • WFE paper notes the benefits of alignment between incentives and interests of CCPs and clearing members
  • WFE paper recommends that CCPs shouldn’t be subject to standardised skin-in-the-game requirements
  • WFE paper says vital that CCPs have flexibility in use of tools as they manage risk in dynamic markets

The World Federation of Exchanges has published a position paper, setting out the views of global market operators and CCPs at its Annual Meeting in Doha, Qatar.

“Exchanges and clearing houses care about systemic stability and the need to make markets safer, more transparent and more resilient,” said Nandini Sukumar, WFE CEO.

”The markets and businesses they operate daily require a high standard of integrity as well as robust risk management practices.

“As markets evolve, WFE and its members will work with regulators and the industry to ensure this is the case. ”

The paper says that a prescriptive ‘one-size-fits-all’ approach to CCP oversight is not the most effective way to manage risk in the system. Given their market expertise and robust safety record, CCPs should continue to retain the flexibility to design and enhance their own risk management tools as has been the case to date.

The WFE paper also notes that CCPs shouldn’t be subject to standardised skin-in-the-game requirements and instead should “be tasked with sizing their contributed capital in a manner that reflects the alignment of clearing member and CCP incentives”.

“CCPs are the experts in their markets and need the flexibility to determine which emergency powers they need to manage events as they arise,” said Gavin Hill, WFE’s Head of Regulatory Affairs.

“Exchanges and CCPs have demonstrated their resilience through several market crises and events in recent years. They are part of the solution,” Hill added.

 

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