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Despite Lack of Details, Central Clearing Has Reduced Systemic Risk 

March 12, 2015

John D'Antona Jr., Traders Magazine

Four out of five investors agree that mandatory central clearing of derivatives have helped the markets safer, despite not knowing all of the details surrounding clearinghouse practices and processes.

Despite 80 percent of investors feeling comfort with regards to clearing, there lack of understanding about the processes clearinghouses use to manage defaults contributes to a widespread belief that additional measures are needed to mitigate risk, according to a new report on systemic risk and central clearing by market consultancy Greenwich Associates.

Nearly 70 percent of institutional investors interviewed by Greenwich Associates in its "Systemic Risk and the Impacts of Central Clearing" report believe the major clearinghouses have adequate financial resources to handle a major multiple bank default. That finding, the consultancy said, represents a strong vote of confidence in both the risk frameworks and the clearing firms operating them. Fewer than one in five say they have a clear understanding of the default management waterfalls at the CCPs that clear their trades.

Read more: Traders Magazine

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