The heterogeneous nature and diverse ownership of central counterparties (CCPs) worldwide mean that they do not conform with regulatory initiatives to impose a single framework for operations and risk management, according to a new report.

Research firm Finadium interviewed major CCPs worldwide to find out how they view the role of collateral for both risk management and as a potential competitive lever in the marketplace.

Its subsequent report—CCPs and the Business of Collateral Management—was released on 15 November.

Stock, options and futures exchanges own 60 percent of recognised CCPs, said the report. “This ownership structure makes CCP activity part of the strategic direction of the exchange itself; decisions made at the exchange level trickle down as opposed to CCP decisions trickling up.”

Boards of industry representatives or outside parties run the remaining 40 percent.

“These ownership structures complicate the process of categorising the intentions of the CCP community; some CCPs operate truly as utilities for the benefit of their users while others are inclined towards market growth through acquisitions and new product development. Further, many exchanges including the CME, ICE and London Stock Exchange are competitive, publicly traded entities, putting their fully owned CCP functions in a competitive position as well.”

While different CCPs offer a range of services for user convenience and as a competitive differentiator, “CCPs worldwide are not necessarily converging to provide one set of advanced functionalities”, said the report.

“CCPs universally say that they are looking to provide efficient services, but the definition of efficiency may vary depending on local market conditions. institutions typically called CCPs may also not be counterparties for every product; some organisations may simply offer clearing, reporting and collateral management services but may leave the counterparty risk to the original trading parties. These variations are important to remember for both users and regulators.”

Author: Mark Dugdale

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