SLIB held the second of its Securities Events in London’s Canary Wharf, on November the 13th, 2014. The subject of this forum, in the form of a roundtable, was “Counterparty Risk in Clearing and Settlement: State of the Art – EMIR and beyond”. This highly specialized niche subject has nevertheless attracted over 50 attendees.
The seven prestigious panellists represented a cross section of the industry, including clearers, the infrastructure, clients, and SLIB.
You will find below the list of panellists:
- Alan Cameron, Head of Relationship Management International Banks and Brokers - BNP Paribas Securities Services
- Roland Chai, Head of Equities - LCH.Clearnet Ltd
- Edward C. Fisher, Head of Securities Clearance EMEA - J.P. Morgan
- Richard Glen, Head of GSF Sales and Broker Dealer Relations - Clearstream
- Ian Lloyd, Partner - TT International Funds
- Christopher Smith, Head of Post-trade Services - Trax
- Kazimierz Sycz, Risk Solutions – SLIB
- Moderator : Francesca Carnevale, Editorial Director - Berlinguer/FTSE Global Markets
As the panellists have noted, EMIR regulation has had lasting impact in the securities domain, even if it was principally inspired by OTC derivatives. This impact has been particularly felt in counterparty risk. European CCPs have been encouraged to tighten up their risk arrangements, including new margin elements (to cover Liquidity and Concentration Risk, and Wrong Way Risk), generalisation of intraday margin calls, and increase of default fund contributions, including the CCP’s own skin in the game. Furthermore, clearers now realise that a CCP itself can default, and have been pressing for more transparency. There is a consensus that it is beneficial to have more than one securities CCP in Europe, but some further consolidation would be welcome. There is more concern about clearing agents: the sector is becoming more concentrated, with the aftermath of regulation driving some actors out, and raising barriers for new entrants.
Adequate control of the risk that a GCM assumes on its clients is the topic of particular pragmatic interest. Kazimierz Sycz of SLIB has noticed that there are subtle differences between how the CCP can manage its risk on the clearing members, and how the GCM can manage its risk on the clients. Thus the GCM who is content to apply strictly the CCP margin model to call margin on his clients leaves a part of his exposure uncovered. Moreover, the GCM now may have a more holistic view of the client’s risk, including exposure on trades that are not centrally cleared (settlement risk).
Recent trends and new challenges in risk mitigation include continuous monitoring of intraday exposure, a stop button functionality that is based on the clearer’s total exposure on a client, and collateral management in which securities can be mobilised and moved around as easily as cash. Trade reporting, when done properly, can also help in containing systemic risk.
Watch this space for news of future Securities Events by SLIB in London.