October 21, 2015
- WFE paper points to strong CCP track record of managing market events, noting they are best placed to manage distinct risks within specific markets
- WFE paper notes the benefits of alignment between incentives and interests of CCPs and clearing members
- WFE paper recommends that CCPs shouldn't be subject to standardised skin-in-the-game requirements
- WFE paper says vital that CCPs have flexibility in use of tools as they manage risk in dynamic markets
The World Federation of Exchanges has published a position paper, setting out the views of global market operators and CCPs at its Annual Meeting in Doha, Qatar.
"Exchanges and clearing houses care about systemic stability and the need to make markets safer, more transparent and more resilient," said Nandini Sukumar, WFE CEO.
''The markets and businesses they operate daily require a high standard of integrity as well as robust risk management practices.
"As markets evolve, WFE and its members will work with regulators and the industry to ensure this is the case. ''
The paper says that a prescriptive 'one-size-fits-all' approach to CCP oversight is not the most effective way to manage risk in the system. Given their market expertise and robust safety record, CCPs should continue to retain the flexibility to design and enhance their own risk management tools as has been the case to date.
The WFE paper also notes that CCPs shouldn't be subject to standardised skin-in-the-game requirements and instead should "be tasked with sizing their contributed capital in a manner that reflects the alignment of clearing member and CCP incentives".
"CCPs are the experts in their markets and need the flexibility to determine which emergency powers they need to manage events as they arise," said Gavin Hill, WFE's Head of Regulatory Affairs.
"Exchanges and CCPs have demonstrated their resilience through several market crises and events in recent years. They are part of the solution," Hill added.
As a global organization representing the full spectrum of regulated exchanges and CCPs, the WFE embraces global standards to assist FMIs in achieving public policy objectives of safety, efficiency and reducing systemic risk. WFE represents more than 100 exchanges and clearing houses across the world. The member list of the WFE is available here.
The 2008 financial crisis and the lack of regulatory visibility over bilateral counterparty risk which this episode exposed markets and investors to, demonstrated to the G20 nations the systemic risk management benefits that CCPs provide. In response, G20 countries and other jurisdictions are now implementing derivative market reforms to encourage centralized clearing and greater pre-trade and post-trade transparency.
ABOUT THE WFE:
The World Federation of Exchanges is the trade association for the operators of regulated financial exchanges. With 64 members from around the globe, the WFE develops and promotes standards in markets, supporting reform in the regulation of OTC derivatives markets, international cooperation and coordination among regulators. WFE exchanges are home to nearly 45,000 listed companies. WFE statistics database covers more than 350 indicators and 70 years of data from exchanges worldwide.