August 09, 2018

FSB and other international standard-setters (CPMI, IOSCO, and BCBS) published the second report that maps interdependencies between central counterparties (CCPs) and their clearing members and other financial service providers. The international standard-setters had published the first report on central clearing interdependencies in July 2017.

To assess whether the findings of the July 2017 report (based on data as of September 2016) were stable over time, the international standard-setters conducted another more streamlined data collection (as of October 2017) from the same 26 CCPs. The results are broadly consistent with the previous analysis and show that:

  • Prefunded financial resources are concentrated at a small number of CCPs. The two largest CCPs account for nearly 40% of total prefunded financial resources provided to all CCPs, compared with 32% in the July 2017 report.
  • Exposures to CCPs are concentrated among a small number of entities. The largest 11 of the 306 clearing members are connected to between 16 and 25 CCPs. 
  • The relationships mapped are characterized, to varying degrees, by a core of highly connected CCPs and entities and a periphery of less highly connected CCPs and entities. However, even the less highly connected CCPs often are linked to at least one highly connected entity that indirectly connects the CCP into the more interconnected part of the network structure. 
  • A small number of entities tend to dominate the provision of each of the critical services required by CCPs. This relationship between CCPs and other entities suggests that a failure at one of these central elements of a CCP network would likely have significant consequences for the rest of the network.
  • Clearing members and clearing member affiliates are also important providers of other critical services required by CCPs and can maintain several types of relationships with multiple CCPs simultaneously. 

There are, however, some changes to highlight in the interdependencies in central clearing. For instance, the concentration of client clearing activity has decreased. Initial margins from clients are now concentrated in two CCPs, compared to only one. The analysis of interdependencies in central clearing is intended to provide useful inputs for designing supervisory stress tests and has informed the policy work as set out in the joint workplan to promote CCP resilience, recovery, and resolvability. The standard-setters published a report on the implementation of the workplan in July 2017.

 

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Keywords: International, PMI, Securities, CCPs, OTC Derivatives, Central Clearing, FSB, CPMI/IOSCO, BCBS

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