The buy-side already pays brokers to support the default fund; why should its assets be at risk in the event of a clearing house default asks Dan Barnes?
Parliament’s Recovery and Resolution paper
protected buy-side assets to some extent in the event that a
CCP failed. A new paper from the International Organization of
Securities Commissions (IOSCO), the collective of securities
regulators, is not as clear. It seems to suggest that buy-side
firms’ assets could be used to support a central
counterparty while it is still functioning as a profit-making
"This is a very thorny issue and
it needs to be addressed," says Barry Hadingham, head of
derivatives and counterparty risk, at Aviva Investors. "Our
clients are being mandated to centrally clear trades because it
supposedly makes the market safer than today, but then you get
to the question: Who picks up the bill if things go wrong in
the cleared environment?"
Swinburne MEP, author of the Parliamentary paper presented in
June, says: "The IOSCO paper is very open to interpretation. I
understand it was a real issue for IOSCO given that it needed
consensus. My regret was that it wasn't more granular but
having spoken to David Wright at IOSCO, I understand that it
would have been difficult."
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