Journal of Financial Market Infrastructures
ISSN:
2049-5404 (print)
2049-5412 (online)
Editor-in-chief: Manmohan Singh
Need to know
- CCP risk management frameworks must be transparent and participants must have appropriate input
- A CCP's skin in the game should be a material portion of its own capital
- This holds regardless of how material the CCP's contribution is relative to the default fund
- A CCP's capital should be used first to absorb any losses in excess of a defaulter's collateral
Abstract
ABSTRACT
The increasing systemic importance of central counterparties (CCPs) has seen recent policy debates focus on the ability of CCPs to withstand a crisis effectively. CCPs maintain prefunded financial resources to cover the potential losses arising from the default of a clearing participant. This paper discusses the incentives created by the composition of these resources, and draws out the role of transparency and governance in ensuring these incentives are effective.
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