Mar 10, 2020
Major buy-side and sell-side firms call for regulatory action to make clearing houses safer and propose a step-change in how the market deals with clearing house failure
Updated March 10, 2020
New York — Today, ABN AMRO Clearing, Barclays, Deutsche Bank, Commonwealth Bank of Australia, Franklin Templeton, Guardian Life, Ivy Investments, Nordea, TIAA and UBS endorsed and joined as signatories a joint buy- and sell-side paper calling for regulatory action to make clearinghouses safer. The paper – entitled a “A Path Forward for CCP Resilience, Recovery and Resolution” – was originally published and backed at a firm-wide level in October 2019 by Allianz, BlackRock, Citi, Goldman Sachs, JPMorgan Chase & Co., Societe Generale, State Street, T. Rowe Price, and Vanguard. The signatories collectively appreciate the attention the recommendations are receiving from global regulators and welcome the continued engagement with the clearinghouses.
Since the financial crisis, clearinghouses have been increasingly relied upon to protect market participants from counterparty losses when faced with major market shocks. In endorsing this paper, the new signatory firms join the original co-authors in showing their support for the further enhancement of the safety and soundness of CCPs. The recommendations, which represent the institutional views of signatory firms, intend to better align incentives between clearinghouses and market participants, and ensure that clearing member and end-user liabilities are manageable.
The growing support for the paper across the financial services industry reflects the depth of convictions towards the important issues raised, and the paper itself is intended as a genuine path forward to protect financial stability and the market’s resilience in the event of a significant disruption.
“The recommendations help to align the incentives of clients, clearing members and CCPs and to strengthen financial markets stability,” said Gert Ellerkmann, Global Risk Governance & Strategy Specialist at ABN AMRO Clearing Bank.
“Central clearing has made the derivatives market more stable, but it has also increased dependence on central clearing counterparties and created a concentration of risk. Taking additional steps to ensure that risk is well managed is beneficial to all parties and the market as a whole,” said Atanas Goranov, Derivatives Risk Officer at The Guardian Life Insurance Company of America.
“We look forward to joining this important joint sell side and buy side initiative to improve CCP resilience, with the goal to enhance financial stability during times of market disruption,” said Andrew Whiteley, Head of Funds Risk at Barclays.
“The whitepaper lays out a comprehensive set of recommendations to better align incentives and strengthen the CCP framework so that the resiliency of this important market function can be further enhanced. We are pleased that such a diverse set of market participants have come together to support the paper and we look forward to the next phase of advocacy on this initiative,” said Jonathan Siegel, Vice President & Senior Legal Counsel at T. Rowe Price.
Original announcement issued on October 24, 2019
New York — BlackRock, Goldman Sachs, JPMorgan Chase & Co., Allianz, Citi, Societe Generale, State Street, T. Rowe Price, and Vanguard, today, in a joint paper, presented detailed recommendations from both buy-side and sell-side perspectives to further enhance the safety and soundness of central counterparties (CCPs), also known as clearing houses. Since the financial crisis, CCPs have been increasingly relied upon to protect market participants from counterparty losses when faced with major market shocks but, despite enhancements in the past few years, the firms believe that there remain outstanding issues relating to CCP resilience, recovery and resolution that require further action.
In the spirit of ensuring on-going financial stability in times of market disruption or crisis, the paper seeks to better align incentives between CCPs and market participants, and ensure that clearing member and end-user liabilities are limited and manageable. Our recommendations address key elements of resilience, recovery, and resolution of a CCP and include:
“Together, these recommendations form a path forward to aligning incentives and enhancing financial stability through even stronger CCPs,” said Nicolas Friedman, Global Co-Head of Counterparty Risk at Goldman Sachs.
“Together, our recommendations will help ensure that CCPs are optimally structured to make sure the market remains resilient in the unlikely event of a meaningful disruption,” said Eileen Kiely, Deputy Head of Counterparty and Concentration Risk at BlackRock.
“Our recommendations would help ensure that clearing members’ and end-users’ exposures to the CCP are limited, ascertainable and manageable,” said Marnie Rosenberg, Global Head of Clearing House Risk & Strategy at JPMorgan Chase & Co.
“While central clearing has mitigated many risks, market resiliency can be enhanced by additional protections to strengthen margin calculations and default fund components, and to preserve the assets of non-defaulting market participants,” said William Thum, Global Head of Capital Markets Legal and Regulatory at Vanguard.