Wavelength Podcast Episode 120: CCP Non-Default Losses
James and Anthony look at the main issues around CCP non-default losses, who should be responsible for these funds, and where this is all heading.
Anthony Malakian, US editor of Waters, and James Rundle, news editor of Waters, record a weekly podcast touching on the biggest stories in financial technology.
This week, Anthony and James examine the issue of clearinghouse management and the risk of non-default losses at a center counterparty clearinghouse (CCP).
To hear the full interview, listen in the player above, or you can download it.
Essentially, how do these entities manage operational risks around cyber-attacks, fraud or disaster recovery? Futures Commission Merchants (FCMs) argue that they shouldn’t be responsible for risk they don’t introduce into the clearinghouse; CCPs argue that the whole point of a clearinghouse is to mutualize risk.
This topic is coming to a head because earlier this year the European Parliament proposed rules on how these should be managed, the first time anyone’s really codified it. Under this, the CCPs have to contribute 25 percent of what they put into the default fund—known as their “skin-in-the-game”—to cover these risks, before they dip into member money that is meant to be there to guarantee trades.
James discusses the main issues involved, how serious a non-default loss could be versus something like a member default, why everyone should care about this issue, and what we can expect going forward. Anthony just basically listens and nods.
The conversation starts at about the 3:45 mark and goes to about 17:00, where they transition—naturally—to a discussion of horror films.
Upcoming Events
Buy-Side Technology European Summit (London)
North American Financial Information Summit (New York)
Toronto Financial Information Summit (Toronto)
Tokyo Financial Information & Technology Summit (Tokyo)
Contact Info
As is the case with everything we do, we'd love to get some feedback from our listeners. Feel free to reach out to Anthony or James via Twitter or email.
Anthony: @a_malakian; [email protected]
James: @JimRundle; [email protected]
Past 10 episodes:
Episode 109: An Overview of the CFTC Technology Advisory Committee’s Meeting
Episode 110: An Examination of the Temenos-Fidessa Deal
Episode 111: The Challenges Facing Utilities
Episode 112: A Look at How Fintechs are Being Disruptive
Episode 113: IBM's Lund on Blockchain's Evolution
Episode 114: A Recap of FIA Boca - Blockchain, Crypto, AI, Brexit
Episode 115: The CME Buys NEX Group
Episode 116: The Perils of Bitcoin; SS&C and Ion Move in on Fidessa
Episode 117: Machine Learning, Chatbots & Fintechs
Episode 118: CAT ‘State of the Union’, RTS 27 & 28 Concerns
Episode 119: SS&C's Acquisition Plans; Data Privacy Concerns; May 2018 Features
Further reading
More on Regulation
Waters Wavelength
Wavelength Podcast Episode 165: Roman Ginis on Trade Execution
The founder and CEO of Imperative Execution looks at how trade execution is changing and what that means for the buy side.
Subscribe to Weekly Wrap emails