CCP must not lower the bar for the buy side, says GFF Summit panellists
31 January 2018 Luxembourg
Image: Shutterstock
EU central counterparties (CCPs) cannot undermine their fundamental security principles to allow more buy-side participants to become members, according to conference panellists.
Despite a dearth of buy-side members engaging with central clearing currently, the nature of the challenges the buy side face in joining mean that CCPs cannot lower the bar to allow them in, explained panellists at the Global Funding and Financing Summit.
One speaker, representing an EU-based CCP, outlined the main hurdles sitting between the buy side and participation in the clearing space, namely: day to day trading costs, resource constraints connected to contributing to the default pools, and risk management.
From the CCP’s point of view, according to the speaker, there are significant challenges involved in allowing non-EU based, non-bank entities into central clearing due to the inherent risk that such counterparties bring.
Panellists discussed the trade off of offering bespoke memberships for resource-challenged buy- and sell-side participants, that could not, or would not, contribute to the various default defences CCPs must employ.
At the same time, another panellists highlighted that non-EU counterparties could also offer a major boost to market liquidity if a viable solution was found and the issue warranted further discussion.
A speaker representing a European CCP concluded by reminding audience members that, at their core, CCPs offer protection against the risk of a defaulting member and the moment you start to deconstruct the core pay-in requirements of members that security is undermined.
Despite a dearth of buy-side members engaging with central clearing currently, the nature of the challenges the buy side face in joining mean that CCPs cannot lower the bar to allow them in, explained panellists at the Global Funding and Financing Summit.
One speaker, representing an EU-based CCP, outlined the main hurdles sitting between the buy side and participation in the clearing space, namely: day to day trading costs, resource constraints connected to contributing to the default pools, and risk management.
From the CCP’s point of view, according to the speaker, there are significant challenges involved in allowing non-EU based, non-bank entities into central clearing due to the inherent risk that such counterparties bring.
Panellists discussed the trade off of offering bespoke memberships for resource-challenged buy- and sell-side participants, that could not, or would not, contribute to the various default defences CCPs must employ.
At the same time, another panellists highlighted that non-EU counterparties could also offer a major boost to market liquidity if a viable solution was found and the issue warranted further discussion.
A speaker representing a European CCP concluded by reminding audience members that, at their core, CCPs offer protection against the risk of a defaulting member and the moment you start to deconstruct the core pay-in requirements of members that security is undermined.
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