THE WORLD FEDERATION OF EXCHANGES & OLIVER WYMAN LAUNCH ‘THE FUTURE OF CLEARING’ REPORT
by Shrutee K/DNS
Mumbai, Tuesday
2 April 2019 –
The World Federation of Exchanges (“WFE”), the global
industry group for exchanges and central counterparties (CCPs), today
published a joint report with Oliver Wyman examining the post-crisis
developments that have shaped the current clearing landscape, along with
forward-looking recommendations on how to build the CCP of the future.
The report – entitled The Future of Clearing – looks at three
areas:
How
we got to where we are, including a concise overview of CCP core functions and
systemic role;
Taking
stock: reviewing what has been achieved so far; and
Looking
ahead: where will the focus be over the next five to 10 years?
KEY HIGHLIGHTS
CCPs far pre-date the financial crisis, and were
providing effective risk management services across multiple asset classes
since well before the crisis.
The performance of CCPs and centrally-cleared
markets through the crisis, and the role of CCPs in managing counterparty
credit risk and enhancing transparency, led G20 leaders, to push for more
central clearing of OTC derivatives.
Other post-crisis reforms aimed at strengthening
the international financial regulatory system include enhanced bank capital
requirements and introducing measures to improve the resilience of systemically
important financial institutions.
There is broad consensus that a significant amount of progress has been made
both in implementing the G20 reforms, and achieving the reform objectives:
There
have been sizeable increases in OTC clearing activity, with commensurate
increases in the number of CCPs offering OTC clearing services.
CCPs
have continued to invest in their risk management and core processes while
bolstering financial resources.
There is recognition, however, that the reforms are not yet fully and consistently
implemented, with a high degree of variation in the use of central
clearing across G20 jurisdictions and asset classes. In addition, in some
instances the interaction of reform can potentially undermine the objectives,
shown most clearly in the treatment of client margin in the leverage ratio (see the WFE’s
position on this issue).
Supervisors need to focus on ensuring implementation of agreed
principles, avoiding unnecessary market fragmentation.
The report concludes with an assessment of the
opportunities for the clearing industry, along with an examination of three future
areas of focus:
Rolling
out the next wave of risk management innovation: management
of operational risk (including cyber resilience), credit, liquidity and market
risks as well as recovery & resolution planning are likely to remain high
on the agenda for CCPs across the globe;
Addressing
barriers to incentives to clear: CCPs
will continue to expand the range of products made available for clearing, as
well as identifying ways to facilitate stakeholder access to clearing services,
such as the possibility of expanding services to clients directly; and
Expanding
the scope and reach of CCP roles/offerings: initiatives
could include the establishment of regional CCP offerings; delivering enhanced
collateral efficiencies; and other adjacent services such as trade data
services, bilateral OTC solutions, and technology solutions/apps.
Nandini Sukumar, Chief
Executive Officer, WFE said: “As the global regulatory approach gradually
shifts from the implementation of the post-crisis reforms towards promoting
market development and growth, we find ourselves at a critical moment in time.
This is the moment when clearing industry stakeholders, including supervisors,
CCPs, and clearing members, must work together to ensure any outstanding areas
of reform are properly implemented. This will avoid undermining the finely
calibrated and complex incentive structures at play in the central clearing
universe, structures that are instrumental in supporting a stable global
capital markets system.”
Daniela Peterhoff, Global Head
of Market Infrastructure, Oliver Wyman added: “Significant
progress has been made across the industry in implementing various post-crisis
reforms. However, in certain areas these reforms have not been fully or
consistently implemented. As we look ahead, supervisors need to focus on
ensuring continued implementation of agreed principles for the clearing
ecosystem and avoiding unnecessary market fragmentation. In addition, the
industry must plan for other challenges including the next regulatory wave, an
evolving risk environment, technology advancements and market structure
evolution.”
Today’s report draws on existing studies and quantitative assessments performed by
industry bodies, as well as a proprietary survey completed by 20 respondents
from across the WFE CCP member base. The WFE’s CCP Working Group (CCPWG) is comprised of 26 CCPs, represented by business
leaders and regulatory/risk management experts, spanning the Americas, EMEA and
Asia-Pacific. The role of the CCPWG is to share information on key developments
related to central counter party clearing, prioritising and engaging on relevant
policy issues while educating stakeholders about the role of clearing. The
group has an in-person meeting each year at IOMA: WFE’s Clearing &
Derivatives conference, and holds additional calls throughout the year to steer
the WFE’s policy development.
The report is being launched today, one day before the
start of the 36th IOMA: WFE's Clearing &
Derivatives Conference in Mumbai, with
host National Stock Exchange of India (NSE). The two-day conference focuses on
post-trade issues and brings together the leaders of the world's futures &
options markets with clearing houses.
About
the World Federation of Exchanges (WFE): Established
in 1961, the WFE is the
global industry association for exchanges and clearing houses. Headquartered in
London, it represents over 200 market infrastructure providers, including
standalone CCPs that are not part of exchange groups. Of our members, 37% are
in Asia-Pacific, 43% in EMEA and 20% in the Americas. WFE exchanges are home to
nearly 48,000 listed companies, and the market capitalisation of these entities
is over $70.2 trillion; around $95 trillion (EOB) in trading annually passes
through the infrastructures WFE members safeguard (at end 2018).
The
WFE is the definitive source for exchange-traded statistics, and publishes over
350 market data indicators. Its free statistics database stretches back
more than 40 years, and provides information and insight into developments on
global exchanges. The WFE works with standard-setters, policy makers,
regulators and government organisations around the world to support and promote
the development of fair, transparent, stable and efficient markets. The
WFE shares regulatory authorities’ goals of ensuring the safety and soundness
of the global financial system.
With
extensive experience of developing and enforcing high standards of conduct, the
WFE and its members support an orderly, secure, fair and transparent
environment for investors; for companies that raise capital; and for all who
deal with financial risk. We seek outcomes that maximise the common good,
consumer confidence and economic growth. And we engage with policy makers and
regulators in an open, collaborative way, reflecting the central, public role
that exchanges and CCPs play in a globally integrated financial system.
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