|
|
Terry Duffy, executive chairman of CME Group, said the shift in moving more OTC derivatives transactions was more profound than just transferring the risk and exposure to a counterparty default from banks to clearing houses. “The difference is with a clearing house we do market-to-market [risk management], either twice daily or have the ability to do it much more often”, he said. “What’s important is making certain the pays and collects are done on a risk basis and not a mark-to-myth or anything else. Because of that, we have a much easier time doing the pays and collects than the banks do if it was a bilateral transaction. In turn, I think some of the banks are just not used to the model of clearing.”
“I think what was critically important, under Dodd-Frank, we made certain we were not forced to accept all bilateral swaps into our clearing house, that if we felt we couldn’t risk manage them we wouldn’t accept them”, said Mr Duffy. “If we do take them, we make certain that we have adequate capital so we can do their risk management. So I think it’s a little bit of a misdirecter.”
Some observers such as Paul Tucker, deputy governor of the Bank of England, have warned that clearing houses must also develop recovery and resolution plans should one default.
Full article (FT subscription required)