Growing importance of CCPs
10 August 2018 Switzerland
Image: Shutterstock
Central counterparties (CCPs) are an increasingly important part of the financial system, a study by The Financial Stability Board (FSB), the Basel Committee on Banking Supervision (BCBS), the Committee on Payments and Market Infrastructures (CPMI), and International Organisation of Securities Commissions (IOSCO) found.
The study follows the central clearing interdependencies report from July last year, and assesses whether those findings have been stable over time.
According to BIS (Bank of International Settlement), the importance of CCPs has increased following the post-crisis reform that mandated central clearing of standardised over-the-counter (OTC) derivatives.
CCPs should be subject to strong regulatory, supervisory, and oversight requirements to fully realise the financial stability benefits they offer, BIS revealed.
The results of the study found that prefunded financial resources are concentrated at a small number of CCPs.
The two largest CCPs account for nearly 40 percent of total prefunded financial resources provided to all CPPs, compared with 32 percent in the report last year.
Additionally, exposures to CCPs are concentrated among a small number of entities. The largest 11 of the 306 clearing members are connected to between 16 and 25 CCPs.
Meanwhile, the study found that the relationships mapped are characterised by a core of highly connected CCPs and entities, and a periphery of less highly connected CCPs and entities.
As well as this, a small number of entities tend to dominate the provision of each of the critical services required by CCPs.
According to the study, this relationship between CCPs and other entities suggests that a failure at one of these central elements of a CCP network would likely have a significant consequence for the rest of the network.
The study also revealed that clearing members and clearing member affiliates are important providers of other critical services required by CCPs, and can maintain several types of relationships with multiple CCPs simultaneously.
BIS noted that there are some changes that highlight the interdependencies in central clearing. For example, the concentration of client clearing activity has decreased.
The study follows the central clearing interdependencies report from July last year, and assesses whether those findings have been stable over time.
According to BIS (Bank of International Settlement), the importance of CCPs has increased following the post-crisis reform that mandated central clearing of standardised over-the-counter (OTC) derivatives.
CCPs should be subject to strong regulatory, supervisory, and oversight requirements to fully realise the financial stability benefits they offer, BIS revealed.
The results of the study found that prefunded financial resources are concentrated at a small number of CCPs.
The two largest CCPs account for nearly 40 percent of total prefunded financial resources provided to all CPPs, compared with 32 percent in the report last year.
Additionally, exposures to CCPs are concentrated among a small number of entities. The largest 11 of the 306 clearing members are connected to between 16 and 25 CCPs.
Meanwhile, the study found that the relationships mapped are characterised by a core of highly connected CCPs and entities, and a periphery of less highly connected CCPs and entities.
As well as this, a small number of entities tend to dominate the provision of each of the critical services required by CCPs.
According to the study, this relationship between CCPs and other entities suggests that a failure at one of these central elements of a CCP network would likely have a significant consequence for the rest of the network.
The study also revealed that clearing members and clearing member affiliates are important providers of other critical services required by CCPs, and can maintain several types of relationships with multiple CCPs simultaneously.
BIS noted that there are some changes that highlight the interdependencies in central clearing. For example, the concentration of client clearing activity has decreased.
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