CME Group release on Clearing – Balancing CCP
Clearing – Balancing CCP and Member Contributions with Exposures
As the industry considers the appropriate ‘skin in the game’ for CCPs, the risk incentives created by the CCP’s contribution have largely been ignored
CME Clearing is a strong supporter of sound risk management underpinned by the belief that market participants must be incentivized to manage the risks they create. This view, while not new, was bolstered by the financial crisis which saw lenders repackaging and offloading the risk of their loans via securitizations, separating risk creators from the responsibilities of bearing that risk. Securitization often resulted in a lack of incentives for lenders to conduct appropriate due diligence on their loans, as the
lenders were not subject to losses if the loans were not repaid. For securitization lenders, as well as other risk creators, skin in the game should be used to ensure these market participants pay to support their positions. This concept applies in central clearing as well, where participants’ skin in the game creates incentives for customers to diversify their exposures across clearing members and for participants to build balanced portfolios, which reduces systemic risk.
Read the full Report here CME Group balancing-ccp-and-member-contributions-with-exposures
Source: CME Group
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