ISDA calls for better risk practices for CCPs
24 January 2019 New York
Image: Shutterstock
Central counterparties CCP risk management decisions should be based on the risk profile of a product, rather than on whether a derivative is an exchange-traded or over the counter product, according to the International Swaps and Derivatives Association (ISDA).
ISDA outlined this in a paper based on set of best practices for CCPs, which also recommended participants to ensure CCPs have risk controls and margin requirements.
The margin requirements should adapt to concentration, liquidity, member credit quality and wrong-way risk in a member’s portfolio, ISDA explained.
As well as this, CCPs should also have effective transparent default management processes and robust membership criteria.
Scott O’Malia, chief executive, ISDA, commented: “ISDA and its members support clearing as an effective tool for mitigating counterparty credit risk, and this is reflected in the fact that 88 percent of US interest rate derivatives trading volume was cleared in 2018.”
O’Malia added: “As clearing volumes continue to grow, it is more important than ever that CCPs adhere to a consistent set of robust risk management best practices.”
ISDA outlined this in a paper based on set of best practices for CCPs, which also recommended participants to ensure CCPs have risk controls and margin requirements.
The margin requirements should adapt to concentration, liquidity, member credit quality and wrong-way risk in a member’s portfolio, ISDA explained.
As well as this, CCPs should also have effective transparent default management processes and robust membership criteria.
Scott O’Malia, chief executive, ISDA, commented: “ISDA and its members support clearing as an effective tool for mitigating counterparty credit risk, and this is reflected in the fact that 88 percent of US interest rate derivatives trading volume was cleared in 2018.”
O’Malia added: “As clearing volumes continue to grow, it is more important than ever that CCPs adhere to a consistent set of robust risk management best practices.”
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