When it comes to clearinghouse risk issues, the cleared derivatives community is united in agreement on the importance of protecting CCPs -- from the clearinghouses themselves to brokers, commodity trading firms and member clearing firms.
But even when there is agreement in principle on key issues like transparency, governance or "skin in the game," reaching consensus among all market participants on key CCP risk issues is no easy task.
That was one of the key takeaways from a panel discussion between top clearinghouses and member firms from around the world at the 44th annual International Futures Industry Conference in Boca Raton, Fla.
Sunil Cutinho, president of CME Clearing, noted that on issues such as the default waterfall and "skin in the game," both the clearinghouse and their member firms have a lot of common ground and agree in principle that "incentives should be properly aligned."
But Cutinho noted that despite the widespread agreement in general that CCPs should indeed be a key part of the default management waterfall to "keep each other honest" and align incentives, the specifics of size or a link to margin or the aggregate size of the guarantee is where agreement breaks down.
Marnie Rosenberg, managing director and head of clearinghouse risk and strategy at J.P. Morgan, agreed.
"Look, we've been talking about this for as long as I've been in clearinghouse risk," Rosenberg said. "I don't know that we really as an industry have collectively moved the dial on this and we need to. There's just a pure difference of opinion between the clearing members and the CCPs."
Similar general agreement but bedeviling details exist on issues such as transparency of margin methodology.
Hester Serafini, president & chief operating officer of ICE Clear U.S., noted that her clearinghouse has heard member concerns about being more transparent on its margin requirements and offers information via rulebooks and other disclosures. However, "we should be very careful about requiring the margin levels that the clearinghouse sets to be entirely formulaic" because the clearinghouse needs "flexibility" to address additional margins to protect market integrity.
Yet another area where CCPs and their members differ in opinion is on the issue of governance and representation. Bill Stenning, managing director of clearing, regulatory and strategic affairs at Societe Generale, noted that, "consulting the risk committee is not the same as consulting members" since the CCP is simply focused on internal risk management while member firms are more broadly concerned with "the safety and soundness of the ecosystem."
Rosenberg agreed, saying that when clearing members sit on a risk committee, they have a different view on new product listings.
"From a membership liability perspective at the individual member level, there may be a view that as a member we don't want to have exposure to a product that we don't think is liquid enough from a pure risk perspective," Rosenberg said.
