CCP
WHAT IS THIS? A central counterparty (CCP) manages default risk by collecting initial and variation margin from both parties to a trade. Spill-over losses are absorbed via a default fund to which all members contribute – introducing a degree of mutualised risk – and by the CCP’s own capital. The concept is an old one that was extended to over-the-counter derivatives in the aftermath of the financial crisis.
Portal combat
The first central clearing houses for credit default swaps were expected to start business at the beginning of December, but hold-ups in regulatory approval delayed the launch in the US. With four ventures now due to take off within months of each other…
Collateral management
Sponsored Statement
CDS clearing house to miss November 30 deadline
The November 30 target for central clearing of index credit default swap (CDS) trades set by a consortium of industry associations and investment banks is unlikely to be met, sources within the Federal Reserve Bank of New York have said.
Rocked by counterparty risk
The demise of Lehman Brothers has triggered fresh concerns about counterparty risk, creating a wave of novations and forcing dealers to think harder about the possibility of another major derivatives counterparty defaulting. Mark Pengelly reports
EC demands centralised clearing by year end
At a meeting with industry groups and regulators on October 22, the European Commissioner for internal markets and services, Charlie McCreevy, outlined his intentions to move credit derivatives away from the over-the-counter (OTC) market and under…
UK Treasury proposes clearing solvency reforms
Daily news headlines
Dealers work towards clearing house for credit default swaps
A group of dealers hoping to avoid the systemic implications of counterparty risk is working with the Clearing Corporation on establishing a central clearing house for certain credit derivatives products.
On thin ice
Following the near-collapse of Bear Stearns, even trades conducted with interbank dealers can no longer be considered risk-free. With so much of the derivatives market concentrated in the hands of a few dealers, what would happen if a major counterparty…