CCPs as instruments of stability and risk mitigation

The Lehman Brothers insolvency and LCH.Clearnet’s successful management of its default in 2008 were a major driver for the G20’s decision to mandate clearing of over-the-counter derivatives. The benefits to systemic stability of central clearing was further proven by the successful wind-down of MF Global’s positions following its bankruptcy in 2011. Central counterparties (CCPs) are being further strengthened under regulation coming into effect in Europe and around the world. However, as national authorities have to work within their existing mandates and structures, differences of detail have arisen. It is important that work on ensuring equivalence between jurisdictions comes to fruition. Work remains to be completed in related areas including CCP recovery and resolution and the treatment of uncleared derivatives, and it will only be as these develop that the full impact can be assessed. Market structures will evolve and adapt to the new framework which will be further affected by the incoming regulations concerning access and interoperability. While any developments that might threaten systemic stability should be avoided, competition and efficiency driven by user choice should bring significant benefits to market users.