![Risk.net](https://www.risk.net/sites/default/files/styles/print_logo/public/2018-09/print-logo.png?itok=1TpHrpuP)
Industry opposes mandatory clearing
Compulsory central clearing is not a one-stop solution to the problems of the derivatives markets, and could end up crippling the industry, warned speakers at an industry event in London on Tuesday.
US Treasury secretary Timothy Geithner has been among the voices calling for central clearing of all "standardised" over-the-counter derivatives trades, in a move aimed at reducing counterparty risk. But, speaking today at the International Derivatives Expo, Ice Clear Europe chief executive Paul Swann warned: "Some products will never be suitable for clearing. Any compulsory clearing would be a bad move and would end up stifling innovation."
Kim Taylor, president of the CME Group's clearing house division, agreed: "There is a danger in too broad a regulatory mandate for clearing," she said. "There are some products that [clearing houses] don't feel comfortable risk managing. The danger is that the markets will lose some diversity and opportunities, and some important product pipelines – products start out specialised and bespoke, and some become more vanilla as time goes on."
Taylor also highlighted another gap in Geithner's proposal: the absence of a clear definition of a "standardised" derivative.
"There is really no bright-line test for what is 'standardised'," she said. "Standard foreign exchange instruments are more complex than vanilla swaps – also, not all standardised instruments are clearable, though they lean in that direction. You need to look at the liquidity of the market, the transparency of pricing, and the number of market participants and the depth - but there's no easy single test for whether you can clear a product or not."
Michael Walinskas, head of risk management and membership at the Options Clearing Corporation in Chicago, added: "It has to be economically viable for a clearing house to clear it – in the end the clearing members will be paying the margin costs... it will depend on whether the participants are willing to put their own money on the line. It doesn't lend itself to a rules-based regime."
See also: Geithner: US will "force all standardised OTC derivatives into central clearing"
Geithner calls for law change to force OTC derivatives clearing
Q&A: EC official "optimistic" on central clearing deadline
Trichet: Eurozone CCP will help improve oversight
European CDS dealers to follow US to fixed coupons
Only users who have a paid subscription or are part of a corporate subscription are able to print or copy content.
To access these options, along with all other subscription benefits, please contact info@risk.net or view our subscription options here: http://subscriptions.risk.net/subscribe
You are currently unable to print this content. Please contact info@risk.net to find out more.
You are currently unable to copy this content. Please contact info@risk.net to find out more.
Copyright Infopro Digital Limited. All rights reserved.
As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (point 2.4), printing is limited to a single copy.
If you would like to purchase additional rights please email info@risk.net
Copyright Infopro Digital Limited. All rights reserved.
You may share this content using our article tools. As outlined in our terms and conditions, https://www.infopro-digital.com/terms-and-conditions/subscriptions/ (clause 2.4), an Authorised User may only make one copy of the materials for their own personal use. You must also comply with the restrictions in clause 2.5.
If you would like to purchase additional rights please email info@risk.net
More on Markets
Jane Street ups its game in FX market-making
High-frequency trading firm now streaming bilateral spot FX liquidity to clients
Triggers of August market ‘flare-up’ still in place, BIS warns
Leveraged positions remain at risk of sudden unwinding, as margin calls play amplifying role
Pre-market trades blamed for record Vix surge
Traders rushed to cover short vol positions before the market opened on August 5
FX forwards dealers face added challenges in P&L analysis
Mark-out tools for forwards and swaps trading may not be a panacea
Recent volatility highlights tech’s vital role in fixed income pricing
MarketAxess’ Julien Alexandre discusses how cutting-edge technology is transforming pricing and execution in the fixed income market amid periodic bouts of volatility
Thames Water: a handy guide for worried counterparties
The UK’s largest water company – now junk-rated – has £1.3bn in swaps liabilities. Dealers ought to be safe, but face a host of headaches and questions
The standoff over separate account margining
CFTC issues sixth extension of no-action relief as long-awaited final rule stalls
US corporates tap euros for cheap debt and FX hedging
Interest rate differentials and cross-currency basis drive highest reverse Yankee issuance since Covid