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Central Counterparty Interoperability

Author

Listed:
  • Nicholas Garvin

    (Reserve Bank of Australia)

Abstract

Many securities and derivatives markets, including most that are traded on an exchange, are served by a central counterparty (CCP). After trades are executed, the CCP inserts itself between both trading counterparties, to protect them from the risk that one defaults before the obligations are settled. CCP interoperability is an arrangement that links different CCPs, allowing participants of one CCP to seamlessly deal with participants of another CCP. This can make it cheaper for traders to participate in a wider range of financial markets, and can facilitate competition between CCPs by opening up participant networks. However, interoperability also introduces financial stability risks, primarily by creating dependencies between the linked CCPs, and so it may be unsuitable for some markets. Interoperability arrangements are currently in place between some CCPs serving European equity markets, and another type of arrangement is in place linking several US CCPs. There are currently no links involving Australian CCPs, although the evolving CCP landscape may encourage links of some form in the future.

Suggested Citation

  • Nicholas Garvin, 2012. "Central Counterparty Interoperability," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 59-68, June.
    • Handle: RePEc:rba:rbabul:jun2012-07
    as

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    File URL: https://www.rba.gov.au/publications/bulletin/2012/jun/pdf/bu-0612-7.pdf
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    Citations

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    Cited by:

    1. Kubitza, Christian & Pelizzon, Loriana & Getmansky, Mila, 2018. "The pitfalls of central clearing in the presence of systematic risk," ICIR Working Paper Series 31/18, Goethe University Frankfurt, International Center for Insurance Regulation (ICIR).
    2. Nathanael Cox & Nicholas Garvin & Gerard Kelly, 2013. "Central Counterparty Links and Clearing System Exposures," RBA Research Discussion Papers rdp2013-12, Reserve Bank of Australia.
    3. Ashwin Clarke & Paul Ryan, 2014. "Non-dealer Clearing of Over-the-counter Derivatives," RBA Bulletin (Print copy discontinued), Reserve Bank of Australia, pages 77-88, March.

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