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Competitive Drive Behind CCP's Transparency Criticisms

By Staff
Published February 13, 2014 The Trade

Central counterparty (CCP) complaints over the International Organization of Securities Commission’s (IOSCO) push for transparency may have an ulterior motive: competition, according PJ Di Giammarino, CEO of regulatory think tank JWG.

IOSCO, alongside the Committee on Payments and Settlement Systems (CPSS), last October released a consultative document on quantitative data that CCPs should publicly release.

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Clarification Needed on CCP Close-Out Netting in India

By Justin Lee
Published January 9, 2014 Risk

The granting of qualified central counterparty (QCCP) clearing status by the Reserve Bank of India (RBI) to the Clearing Corporation of India (CCIL) is positive, but further clarification on close-out netting in the event of a CCP default is needed, say local market participants.

On January 1, the central bank granted CCIL QCCP status after assessment that the CCP was compliant with principles for financial market infrastructures drawn up by the Committee on Payment and Settlement Systems and International Organization of Securities Commissions, meaning that banks are able to hold a lower level of capital (2%) against over-the-counter derivative trades that are cleared through a QCCP.

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Ice Members Split Over New Client Clearing Model

By Tom Osborn
Published November 12, 2013 Risk

A client clearing model championed by Ice Clear Europe as a capital-efficient way to provide extra protection for client assets is dividing clearing members. Some claim it could leave them unfairly exposed in the event of a client default.

The approach – dubbed sponsored principal – allows buy-side firms to face the clearing house directly. The client would make initial and variation margin payments to Ice, rather than using a member firm as an intermediary, and would no longer be exposed to the collapse of that member. A sponsoring clearing member would still contribute to the default fund of the central counterparty (CCP) on the client's behalf, and would be able to monitor the customer's collateral position.

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Leverage and CCP Capital Proposals Will Hurt Clearing – Risk.net Poll

By Nick Sawyer
Published October 17, 2013 Risk

Four fifths of respondents to a new Risk.net poll think proposed changes to the leverage ratio and CCP capital rules will make it uneconomical to become a clearing member

Proposed changes to the Basel III leverage ratio and capital treatment for bank exposures to central counterparties (CCPs) will make it uneconomical to act as a clearing member in Europe, according to 80% of respondents to a Risk.net poll.

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Acting as a Clearing Member Will Be Uneconomical – Isda Panel

By Matt Cameron
Published September 20, 2013 Risk

New proposed capital rules will make it uneconomical for banks to act as clearing members, fatally damaging regulatory attempts to bake an incentive to clear into financial market reforms, according to industry experts.

Two regulations in particular will combine to make clearing too punitive, particularly in Europe, said market participants, speaking on a panel at the International Swaps and Derivatives Association annual European conference in London yesterday.

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Leverage Ratio Changes Threaten European Clearing Model, Industry Warns

By Lukas Becker
Published August 27, 2013 Risk

Revisions to the Basel III leverage ratio could destroy the incentives regulators are trying to create for trades to be centrally cleared, banks are warning, by driving up the exposure number against which the industry has to hold at least 3% in Tier I capital.

Fears about the clearing impact are focused on the European model, which uses two back-to-back trades to get exposures into a central counterparty (CCP). Under the June 26 revisions, the industry believes both of these trades – between a client and a clearing member, and between the clearing member and the CCP – will count towards the member bank's leverage exposure, with no netting allowed because each is with a separate counterparty.

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Single-Name CDS Clearing Held Up by Fears Over SEC Regime

By Joe Rennison
Published August 21, 2013 Risk

Fears that margin requirements for single-name credit default swaps (CDSs) will leap in December, when temporary rules for buy-side firms expire, is keeping clearing volumes low, according to sources at three US hedge funds. The biggest US CDS clearer, Ice Clear Credit, has so far handled just $60 million in single-name CDSs from the buy side, compared to roughly $2 trillion in client index trades.

The rules were introduced on June 7 by the US Securities and Exchange Commission (SEC), replacing an earlier stopgap regime that would have forced most buy-side firms to hold at least double the amount of initial margin calculated by a central counterparty (CCP).

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IASB Eases Fears Over Hedge Accounting for CCP Novations

By Matt Cameron
Published June 4, 2013 Risk

Derivatives users should be able to clear trades without losing hedge accounting treatment after the International Accounting Standards Board (IASB) tentatively agreed on May 22 to widen the scope of guidance it sketched out in February – a decision that has been welcomed by the industry.

The original guidance stated that hedge accounting would be lost in the event of a novation – in which a new counterparty steps into an existing trade – with an exception granted for trades required by law or regulation to be novated to a clearing house.

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Eurex Warns Explicit CCP Recovery Plans Could Be "Very Dangerous"

By Michael Watt
Published May 23, 2013 Risk

It could be dangerous to require a central counterparty (CCP) to set out in advance the steps it would take to recover from a severe loss, Eurex has warned – a stance at odds with emerging international policy – because the recovery plans may not work in all conditions.

The issue was raised at the end of last month by the Bank of England (BoE), in a paper on loss allocation at a damaged CCP. It notes that clearing houses have the ability to write into their rulebook the steps they would take when the rest of the waterfall of resources has been wiped out and lays out the advantages of doing so.

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BOE's Tucker: Extend EU Resolution Rules To Clearing Houses

By Jason Douglas
Published April 22, 2013 Wall Street Journal

European Union proposals requiring banks to provide regulators with "living wills" should be extended to include clearing houses, a senior Bank of England official said Monday.

Writing in the Bank of France's financial stability review, BOE deputy governor Paul Tucker said clearing houses, also known as central counterparties or CCPs, are an important part of the financial system and supervisors should be able to dismantle them safely in a crisis without calling on taxpayers' cash.

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