Oct 24, 2019
Major buy-side and sell-side firms call for regulatory action to make clearing houses safer and propose a step-change in how the market deals with clearing house failure
New York — BlackRock, Goldman Sachs, JPMorgan Chase & Co., Allianz, Citi, Societe Generale, State Street, T. Rowe Price, and Vanguard, today, in a joint paper, presented detailed recommendations from both buy-side and sell-side perspectives to further enhance the safety and soundness of central counterparties (CCPs), also known as clearing houses. Since the financial crisis, CCPs have been increasingly relied upon to protect market participants from counterparty losses when faced with major market shocks but, despite enhancements in the past few years, the firms believe that there remain outstanding issues relating to CCP resilience, recovery and resolution that require further action.
In the spirit of ensuring on-going financial stability in times of market disruption or crisis, the paper seeks to better align incentives between CCPs and market participants, and ensure that clearing member and end-user liabilities are limited and manageable. Our recommendations address key elements of resilience, recovery, and resolution of a CCP and include:
“Together, these recommendations form a path forward to aligning incentives and enhancing financial stability through even stronger CCPs,” said Nicolas Friedman, Global Co-Head of Counterparty Risk at Goldman Sachs.
“Together, our recommendations will help ensure that CCPs are optimally structured to make sure the market remains resilient in the unlikely event of a meaningful disruption,” said Eileen Kiely, Deputy Head of Counterparty and Concentration Risk at BlackRock.
“Our recommendations would help ensure that clearing members’ and end-users’ exposures to the CCP are limited, ascertainable and manageable,” said Marnie Rosenberg, Global Head of Clearing House Risk & Strategy at JPMorgan Chase & Co.
“While central clearing has mitigated many risks, market resiliency can be enhanced by additional protections to strengthen margin calculations and default fund components, and to preserve the assets of non-defaulting market participants,” said William Thum, Global Head of Capital Markets Legal and Regulatory at Vanguard.