CCPs

With mandatory central clearing being worked through in Europe, there are, at the time of writing, 13 approved CCPs (central counterparty clearing houses) approved under EMIR (the European Market Infrastructure Regulation). The move to mandatory clearing, whilst aimed at reducing systemic risk in the markets, will, of course, bring with it a whole host of additional risks.

The G20 mandate to move standardised, over-the-counter (OTC) derivatives into central clearing not only covers America and Europe; it is also a challenge, and probably a bigger one, for the Asian markets. While the major Western clearing houses such as LCH.Clearnet, ICE and CME are competing intensely in the OTC clearing space, the Asian CCPs are also reshaping their clearing landscape at a remarkably fast pace.

Mandatory central clearing has been a globally unanimous regulatory response to the financial crises that hit post-2008. Positioning a buyer to every seller and a seller to every buyer at the centre of financial markets is the route to ensuring that all trades are completed efficiently and safely. It encourages competition, new market participants and places a layer of unanimity into the trading space.

Whilst the concept of clearing houses is anything but a new one, the notion of placing them at the centre of financial markets, as risk concentrators, is. With the advent of regulations such as EMIR (European Market Infrastructure Regulation) and Dodd-Frank in response to the post-2008 financial crises, mandatory central clearing will soon be upon us. The clearing houses will act as the buyer to every seller, and the seller to every buyer.

The trickle of authorised CCPs in Europe has continued, with CME Clearing Europe becoming the 10th to receive approval. It joins, in chronological order, NASDAQ OMX, EuroCCP, KDPW_CCP, Eurex Clearing, CC&G, LCH.Clearnet S.A, European Commodity Clearing, LCH.Clearnet Ltd and Keller CCP. A further 12 CCPs are awaiting authorisation from ESMA (the European Securities and Markets Authority).

Pages