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Decentralised clearing? An assessment of the impact of DLTs on CCPs
Journal of Securities Operations & Custody,
16
(3),
227-246
(2024)
Abstract
Recent years have witnessed noticeable expansion of new technologies related to distributed ledger technology (DLT) and blockchain networks in financial markets. As developments unfold, the key question that emerges is whether these technologies would work to foster traditional services or, conversely, would challenge their existence. Similar reflections exist for specific parts of the financial system. In particular for central counterparties (CCPs), proof-of-concepts and theoretical exercises have been conducted aiming at responding to such questions. While empirical experiences are yet to mature, theoretical exercises have suggested the impact on CCPs could be substantial, if not detrimental. The objective of this paper is to contribute to the literature and investigate the impact of DLTs on CCPs. Different from previous exercises, the paper resorts to the economic theory of financial service intermediation to substantiate the assessment. Using functional analysis and good type categorisation, the main conclusion of the paper is that under the current offering it seems challenging to foresee a scenario where any of the main services provided by a CCP would disappear or become fully disintermediated. The supporting argument is that the core functions of a CCP orbit around risk management, provided either as private or club type of good. Until now new technologies do not seem able to change the nature of these services and, therefore, render fundamental changes to CCPs less likely.
Keywords: central counterparties; central clearing; financial regulation; derivatives markets; OTC derivatives; systemic risk
The full article is available to subscribers to the journal.
Author's Biography
Rafael Plata is the Secretary General of the European Association of CCP Clearing Houses (EACH), the trade body that represents European CCPs. He is a professional of the capital markets industry which he joined more than 20 years ago. Rafael has in the past represented the interests of regulated markets at FESE, contributed to EU policy-making at an MEP office at the European Parliament and advised pension funds as an investment consultant. He is a member of the ESMA Consultative Working Group for CCP Policy and the ECB’s Market Infrastructures Consultative Group (AMI SeCO). Rafael also acts as an Editorial Board member of the Journal of Securities Operations & Custody and Member of the Board and Chair of Leadership Circle at the European Society for Association Executives. He has also been an Invited lecturer on CCP Clearing at the Solvay School of Economics and Management. Rafael studied Business and Economics at Universidad Loyola Andalucia (Spain) and The University of Birmingham (UK) and holds a master degree in European Economics from the Free University of Brussels (Belgium).
Max Chan is a Policy Adviser at the European Association of CCP Clearing Houses (EACH), working on operational, risk management, cyber security and new technology related topics from a CCP perspective, and has contributed to EACH thought papers on DLT and Climate Risk management. Max studied International Politics to Masters level at Aberystwyth University, and has previous experience in government relations at Clearstream Banking Luxembourg.
Fernando Cerezetti currently chairs the Risk Committee of the European Association of CCP Clearing Houses (EACH). He holds a PhD in Statistics with a focus on Bayesian Statistics.
