Direct clearing could solve CCP concentration risk

Giving more clients the chance to self-clear can reduce CCPs’ reliance on a few firms, argues former Chicago Fed adviser

The business of derivatives clearing lies in the hands of a small number of financial firms. Given this high level of concentration, the financial insolvency of just one of the largest general clearing members (GCMs) would have a big effect on the clearing ecosystem.

First, it would entail the liquidation of a substantial and largely directional house portfolio. Second, client positions and initial margin assets would need to be transferred to other clearing members likely in a difficult