Alignment and stress-testing key to CCPs, says DTCC
01 June 2015 New York
Image: Shutterstock
CCPs should be aligning management and clearing members and implementing standardised stress-testing, according to a new white paper by DTCC.
The paper, titled CCP Resiliency and Resources, looked in to CCP governance, default management and continuity in CCPs in times of market distress.
It highlighted a need for CCP management to align with clearing members in governing risk management and default management processes, and suggested enhanced transparency and additional rules in order to improve clarity and certainty for members.
It also recommended that CCPs and regulators develop and implement a standardised stress-testing framework. This should reconcile the assumptions, parameters and governance of stress tests across central counterparties, but also allow for customisation, allowing for specific risks faced by individual CCPs.
DTCC operates two CCPs – the Fixed Income Clearing Corporation (FICC) and National Securities Clearing Corporation (NSCC). Both are designated Systemically Important Financial Market Utilities (SIFMUs) in the US.
The paper suggested that DTCC would change the default loss waterfall for its own CCPs, moving towards a guarantee fund structure combined with limited clearing member assessments.
These changes are intended to enhance resources for the CCPs while also improving clarity for clearing members concerning maximum exposures in case of a counterparty default.
Murray Pozmanter, managing director and general manager of DTCC’s SIFMUs, said:
“DTCC understands its role as a critical infrastructure provider and continually seeks opportunities to enhance its CCPs to promote market stability.”
He added: “We’re encouraged by the increased industry attention to CCP issues, and we want to ensure that DTCC’s perspectives can contribute to these ongoing discussions. We look forward to partnering with the industry and regulators on the appropriate next steps.”
The paper, titled CCP Resiliency and Resources, looked in to CCP governance, default management and continuity in CCPs in times of market distress.
It highlighted a need for CCP management to align with clearing members in governing risk management and default management processes, and suggested enhanced transparency and additional rules in order to improve clarity and certainty for members.
It also recommended that CCPs and regulators develop and implement a standardised stress-testing framework. This should reconcile the assumptions, parameters and governance of stress tests across central counterparties, but also allow for customisation, allowing for specific risks faced by individual CCPs.
DTCC operates two CCPs – the Fixed Income Clearing Corporation (FICC) and National Securities Clearing Corporation (NSCC). Both are designated Systemically Important Financial Market Utilities (SIFMUs) in the US.
The paper suggested that DTCC would change the default loss waterfall for its own CCPs, moving towards a guarantee fund structure combined with limited clearing member assessments.
These changes are intended to enhance resources for the CCPs while also improving clarity for clearing members concerning maximum exposures in case of a counterparty default.
Murray Pozmanter, managing director and general manager of DTCC’s SIFMUs, said:
“DTCC understands its role as a critical infrastructure provider and continually seeks opportunities to enhance its CCPs to promote market stability.”
He added: “We’re encouraged by the increased industry attention to CCP issues, and we want to ensure that DTCC’s perspectives can contribute to these ongoing discussions. We look forward to partnering with the industry and regulators on the appropriate next steps.”
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