Having written a bunch of blogs about clearing and settlement, an interesting announcement on clarifying the standards came out today:
The Committee on Payment and Settlement Systems (CPSS) and the Technical Committee of the International Organization of Securities Commissions (IOSCO) have set up a working group to review the application of the 2004 CPSS-IOSCO Recommendations for Central Counterparties to clearing arrangements for over-the-counter (OTC) derivatives. The recommendations, which were developed by the CPSS and the IOSCO Technical Committee, set out standards for risk management of a central counterparty.
In recent years, there have been coordinated efforts by the public and private sector to improve bilateral clearing and settlement arrangements for OTC derivatives transactions. More recently, several existing, newly established, and proposed central counterparties (CCPs) have sought to provide central clearing and settlement services for OTC credit default swap (CDS) transactions, interest rate swaps, and other asset classes of OTC derivatives.
The CPSS and IOSCO believe that the expansion of centralized clearing and settlement is a positive development because, if well designed, CCPs can reduce systemic risk in financial markets. Accordingly, the relevant authorities for CCPs for OTC derivatives seek to ensure that each CCP meets the risk management standards set forth in the recommendations. However, applying the recommendations in practice can involve a significant degree of interpretation and judgment.
To promote consistent interpretation, understanding and application of the recommendations across CCPs for OTC derivatives, the working group has been formed to discuss key issues that can arise when CCPs, including the new CDS CCPs, provide central clearing services for OTC derivatives. Where necessary, the working group will propose guidance on how CCPs for OTC derivatives may meet the standards set out by the recommendations and will identify any areas in which the recommendations might be strengthened or expanded to better address risks associated with the central clearing of OTC derivatives.
Participants in the working group include representatives of the central banks that are members of the CPSS, representatives of the securities regulators that are members of the IOSCO Technical Committee, and representatives of the International Monetary Fund and the World Bank.
The working group will coordinate with other regulatory authorities and communicate with the industry, as appropriate, as the work moves forward.
By way of background, the CPSS is a forum for central banks to monitor and analyze
developments in payment and settlement arrangements as well as in
cross-border and multicurrency settlement schemes.
is the international policy forum for securities regulators. The
organization’s membership regulates more than 95% of the world’s
securities markets in over 100 jurisdictions, and its membership is
The Technical Committee is a specialised
working group established by IOSCO’s Executive Committee, and is made
up of 18 agencies that regulate some of the world’s larger, more
developed and internationalized markets. Its objective is to review
major regulatory issues related to international securities and futures
transactions and to coordinate practical responses to these concerns.
members of the Technical Committee come from Australia, Brazil, China,
France, Germany, Hong Kong SAR, India, Italy, Japan, Mexico, the
Netherlands, Ontario, Quebec, Spain, Switzerland, the United Kingdom
and the United States.
The original recommendations issued in 2004 can be viewed here (75 page pdf).
Chris M Skinner
Chris Skinner is best known as an independent commentator on the financial markets through his blog, TheFinanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal's Financial News. To learn more click here...