The systemic risks of OTC derivatives central clearing
Abstract
This paper examines the changes to systemic risk made by the introduction of over the counter derivatives central clearing. It discusses both the reductions in exposure brought about by the introduction of central counterparties (CCPs) as buffers between derivatives counterparties, and the risks posed by the potential for a CCP failure. In particular, this paper studies both the solvency risks whereby a CCP might sustain sufficient losses to be unable to continue operations, and liquidity risks whereby the failure of a CCP or one of its members may be caused by an inability to meet claims. Based on this analysis, possible mitigants are suggested to the principal systemic risks posed by central clearing.
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Author's Biography
David Murphy Head of Market Operations, has a strong background in trading and technical analysis with over 15 years of experience in global equities, indices and market structure. Having previously worked at HSBC Asset Management and FTSE International, David joined Equiduct in May 2008 to set up the Market Operations team and processes and managed the successful configuration of the Equiduct market for the launch of trading in early 2009. David remains responsible for market operations and runs the Business Development team, contributing to the growth of Equiduct’s business through the development of innovative market structure.
Citation
Murphy, David (2012, June 1). The systemic risks of OTC derivatives central clearing. In the Journal of Risk Management in Financial Institutions, Volume 5, Issue 3. https://doi.org/10.69554/FCAQ5690.
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