The mandatory clearing space is developing quickly in the post-crises environment. Alex Harborne looks at the space in more detail.

Global regulators and financial institutions should focus on preventative rather than reactive measures to mitigate the knock-on effects of a CCP (central counterparty clearing house) running into difficulty if one of its clearing members defaults.

I want to compare one CCP versus another. I want the CCP to tell me how many clearing members – starting with the largest – that the default fund covers. Does it cover only the largest clearing member, the top three, five or 10 clearing members, or everybody? How deep is the waterfall?

FICC (the Fixed Income Clearing Corporation) is seeking regulatory approval from the Securities and Exchange Commission (SEC) and Federal Reserve to provide centralised clearing for the US$1.6 trillion institutional tri-party repo market.

The so-called collateral shortfall is unlikely to be as severe as some market participants initially believed, although obtaining high grade eligible collateral to post as initial and variation margin to central counterparty clearing houses (CCPs) could become more challenging.