The Depository Trust and Clearing Corporation (DTCC) have called for a standardized framework in testing the stability of clearing houses in times of financial crises.
In a white paper released by the U.S. firm, it set out a number of principles for central counterparty (CCP) risk management, as regulatory attention continues to focus on the stability of key market infrastructures.
“DTCC supports as much standardization as possible in terms of… parameters tested and governance around CCP’s stress testing methodologies, within a framework that permits customized testing that targets the market conditions most likely to stress each CCP,” the DTCC says.
The testing of CCPs is intended to enable clearing members to evaluate the strength and resiliency of different clearing houses, giving them benchmarks to compare different CCPs.
DTCC, which operates two U.S. based clearing houses, also added a CCPs contribution to its own default loss waterfall should be limited.
“Very large or rapidly scalable CCP contributions to our default loss waterfalls would only add costs and reduce flexibility to deploy capital where it is needed in a crisis, potentially increasing the risk of mutualized losses.”
Market participants are seeking increased transparency around CCPs, which have taken on a pivotal role to reduce systemic risk in the financial markets following the financial crisis.
“We’re encouraged by the increased industry attention to CCP issues, and we want to ensure that DTCC’s perspectives can contribute to these ongoing discussions. We look forward to partnering with the industry and regulators on the appropriate next steps,” says Murray Pozmanter, Managing Director and General Manager of DTCC’s SIFMUs (systemically important financial market utitlity).
DTCC Calls for Standardized CCP Stress Tests
The Depositary Trust and Clearing Corporation (DTCC) have called for a standardized framework in testing the stability of clearing houses in times of financial crises.