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Securities Regulation - Powerpoint Presentation
Securities Regulation - Powerpoint Presentation
Securities Regulation - Powerpoint Presentation
Topic Question
Will a central counterparty (CCP) clearing system, for certain classes of over-the-counter (OTC) derivatives, reduce systemic risk in the financial system?
Thesis Statement
A CCP clearing system for certain classes of OTC derivative
will provide certain benefits. However, in isolation, a CCP will not reduce the overall level of systemic risk in the financial
system.
they
are
negotiated
privately
between
financial
What is a CCP?
Currently most OTC derivative trades are bilateral. This is the plate of spaghetti model that can create an
(Source: Council of Financial Regulators Discussion Paper, Central Clearing of OTC Derivatives in Australia, figure 2)
(Source: Council of Financial Regulators Discussion Paper, Central Clearing of OTC Derivatives in Australia, figure 2)
Legal Context
Pittsburgh 2009 - G20 Group of Nations commitments Intention of preventing a repeat of the GFC Moving towards a system of CCP clearing for OTC derivatives was one of these commitments, based on the belief that it would reduce systemic risk. In response to G20 commitments Australia amends Corporations Act 2001 (Cth) in 2012 ASIC given the power to make derivative transaction rules that require certain classes of derivatives to meet stipulated clearing
requirements (s 901A)
Concentration of Risk
A CCP will not reduce overall risk it will only alter its form.
Conclusion
A CCP clearing system for certain classes of OTC derivative trades will provide certain benefits. However, in relation to systemic risk in the financial system it will not reduce its overall
level.