CCPs do not conform
15 November 2012 Concord
Image: Shutterstock
The heterogeneous nature and diverse ownership of central counterparties (CCPs) worldwide mean that they do not conform with regulatory initiatives to impose a single framework for operations and risk management, according to a new report.
Research firm Finadium interviewed major CCPs worldwide to find out how they view the role of collateral for both risk management and as a potential competitive lever in the marketplace.
Its subsequent report—CCPs and the Business of Collateral Management—was released on 15 November.
Stock, options and futures exchanges own 60 percent of recognised CCPs, said the report. “This ownership structure makes CCP activity part of the strategic
direction of the exchange itself; decisions made at the exchange level trickle
down as opposed to CCP decisions trickling up.”
Boards of industry representatives or outside parties run the remaining 40 percent.
“These ownership structures complicate the process of categorising the intentions
of the CCP community; some CCPs operate truly as utilities for the benefit of
their users while others are inclined towards market growth through acquisitions
and new product development. Further, many exchanges including the CME, ICE
and London Stock Exchange are competitive, publicly traded entities, putting
their fully owned CCP functions in a competitive position as well.”
While different CCPs offer a range of services for user convenience and as a
competitive differentiator, “CCPs worldwide are not necessarily converging to
provide one set of advanced functionalities”, said the report.
“CCPs universally say that they are looking to provide efficient services, but the definition of efficiency may vary depending on local market conditions. institutions typically called CCPs may also not be counterparties for every product; some organisations may simply offer clearing, reporting and collateral management services but may leave the counterparty risk to the original trading parties. These variations are important to remember for both users and regulators.”
Research firm Finadium interviewed major CCPs worldwide to find out how they view the role of collateral for both risk management and as a potential competitive lever in the marketplace.
Its subsequent report—CCPs and the Business of Collateral Management—was released on 15 November.
Stock, options and futures exchanges own 60 percent of recognised CCPs, said the report. “This ownership structure makes CCP activity part of the strategic
direction of the exchange itself; decisions made at the exchange level trickle
down as opposed to CCP decisions trickling up.”
Boards of industry representatives or outside parties run the remaining 40 percent.
“These ownership structures complicate the process of categorising the intentions
of the CCP community; some CCPs operate truly as utilities for the benefit of
their users while others are inclined towards market growth through acquisitions
and new product development. Further, many exchanges including the CME, ICE
and London Stock Exchange are competitive, publicly traded entities, putting
their fully owned CCP functions in a competitive position as well.”
While different CCPs offer a range of services for user convenience and as a
competitive differentiator, “CCPs worldwide are not necessarily converging to
provide one set of advanced functionalities”, said the report.
“CCPs universally say that they are looking to provide efficient services, but the definition of efficiency may vary depending on local market conditions. institutions typically called CCPs may also not be counterparties for every product; some organisations may simply offer clearing, reporting and collateral management services but may leave the counterparty risk to the original trading parties. These variations are important to remember for both users and regulators.”
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