A hot debate at Sibos this year has been whether central counterparty clearing houses (CCPs) add risk into the financial system or prevent the next financial crisis. Thomas Zeeb, CEO at SIX Securities Services, says neither one of these is necessarily the case.
CCPs dont inherently add or reduce risk in the system, Zeeb says, adding, I dont believe that a CCP is the automatic solution to address some of the risk issues that are in the markets at the moment.
But Zeeb says the keys to a sound CCP would be that it is conservative enough, works in real time and is financially stable enough to handle defaults in the system. That, at the moment, is not a given, he says.
With the proliferation of the use of CCPs for OTC derivatives, the issue of the types of collateral accepted at CCPs is becoming front and center. To my mind, I know there is a view that the market will generate additional forms of collateral so that the collateral constraints that we currently have will be resolved, he says. I dont believe that thats the right way.
He points to a lesson learned in the financial crisis: that restructuring and securitizing different types of assets can make it more difficult to understand what an exposure position really is. To my mind, collateral needs to be simple, it needs to be liquid, it needs to be understandable and able to be valued, and it needs to be of high quality. That will create some constraints. But thats part of what were expecting a CCP to do is to look at managing the risks on both sides of their business effectively.
Click here to continue by watching the video with Zeeb at Sibos on GCTV.
(CG)