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“Woefully inadequate” CCPs could pose major systemic risk 

November 25, 2014
Elliott Holley, Banking Technology

Despite the G20 plans put in place since the financial crisis, CCPs are still vulnerable to unforeseen risks and could put the whole financial system in jeopardy in the event of a catastrophic default, according to senior financial services executives speaking in London today.

“The CCP default fund contribution is woefully inadequate,” said Nick Forgan, co-head of global clearing at JP Morgan. “The CCPs only pay 2% towards that fund at the moment, and that contribution needs to increase, because we have to rule out the taxpayer picking up the cost. The industry needs to be able to shoulder this burden, and the ring-fencing of losses is vitally important.”

Speaking on a panel discussion hosted by Deutsche Börse in London, Forgan added that public trust in the system must be protected and the banking industry must be ready to take responsibility. Forgan was supported by fellow panellist Stuart Anderson, vice president of derivatives at Blackrock, who agree that CCPs need to put aside more capital to ensure the safety of the market.

Read more: Banking Technology

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