The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) issued a consultative report focusing on access to central counterparty (CCP) clearing and client-position portability. The report considers the potential benefits and challenges of new access models developed by central counterparties and discusses good practices to facilitate porting of client positions. The report also seeks to identify potential issues for follow-up work, with the comment period ending on January 24, 2022.
The client clearing process facilitates access to central counterparties, particularly for firms (known as '"clients") that are not direct participants in a central counterparty and must rely on intermediaries to indirectly clear their trades. Since some entities cannot, or choose not to, directly participate in a central counterparty, improving access to client clearing is critical to the success of the G20 objective to have all standardized over-the-counter (OTC) derivatives contracts cleared through central counterparties. This consultative report briefly explains the objectives of the work in this area and describes “direct” and “sponsored” access models that allow entities that have historically participated indirectly as clients to directly access central counterparty services. These new models introduce new challenges, incentives, and risk distribution among different kind of participants. They also introduce new risks (for example, the risks related to the “sponsor” default), with the availability and use of these types of models varying significantly in different segments of cleared markets. These models, for instance, are not used widely for the derivatives markets. The report outlines potentially effective porting practices, focusing in particular on alternative client clearing service provider arrangements and game plans. The implications of legal frameworks and account structures, which vary in availability by jurisdiction, have been also considered in the report.
At present, if a central counterparty member defaults, its clients' accounts need to be transferred to another central counterparty member or liquidated in a short time frame. Since forced liquidation is undesirable, the report identifies effective ways to support successful porting in this event. The report proposes possible effective practices concerning three key elements of a successful central counterparty porting framework: communication, coordination, and harmonization. It sets forth issues for central counterparties to consider when developing a porting protocol and identifies a series of suggested next steps for the industry with regard to porting practices. Finally, the report sets forth a series of questions for feedback.
Comment Due Date: January 24, 2022
Keywords: International, Banking, Securities, CCP, Client Clearing, Derivatives, Porting Practices, Default Risk, Credit Risk, CPMI, IOSCO
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