CCP

As the market in Europe prepares for the commencement of mandatory clearing, new clearing structures are being devised by CCPs (central counterparty clearinghouses) to make the process smoother, more cost efficient and, perhaps most pertinently, more collateral efficient for clients.

With increased demands being placed upon collateral, collateral management and optimisation has never been more important. Being able to source the right collateral at the right time is vital.

Those investors still exempt from the central clearing of OTC derivatives trades face rising risks in delaying the decision to clear.

The central clearing of standardised over-the-counter (OTC) derivatives via central clearing counterparties (CCPs) was mandated by global financial regulators following the financial crisis.

In the world of capital markets, the public spotlight has predominantly fallen on pre-trade and trade analysis. The media focusses its attention on the price of shares, the movement of currencies, the possibility of changes to interest rates and the fundamentals of markets, as well as corporate news.

The £126 million fine levied by the UK Financial Conduct Authority (FCA) on BNY Mellon in April for breaches of the rules on the safekeeping of client assets was the latest in a series of similar sanctions.  The fine was the eighteenth penalty levied in four years on UK financial institutions for breaches of the UK’s custody rules (or “CASS”) regime, apparently highlighting a widespread industry problem.

The prolonged transatlantic battle over the mutual recognition of central counterparty clearing houses (CCPs) reflects deep differences over the costs of resolving a failing CCP. And asset managers may find that their share of those costs is on the rise.

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