BIS: Intl Oversight Of Central Counterparty Clearing Houses Needed

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The introduction of central counterparty clearing houses or CCPs is not likely to be sufficient to ensure efficiency in the over-the-counter derivatives markets, the Bank for International Settlements said on Monday in its quarterly review.

A CCP is an entity that interposes itself between counterparties to contracts traded in one or more financial markets, becoming the buyer to every seller and seller to every buyer.

The introduction of CCPs should be complemented with improvements in trading and settlement infrastructure, the report said. This covers the greater use of automated trading, registration of all trades in central data depositories, and enhanced risk management and disclosure requirements for market participants themselves.

The Basel, Switzerland-based BIS added that experience during the recent crisis highlighted the need for fundamental improvements in the management of counterparty risk and transparency in OTC derivatives markets.

During the financial crisis, existing CCPs arrangements performed well, the report said. However, the crisis exposed the need for international coordination of the oversight of systemically important CCPs by central banks and other relevant authorities. "One important and as yet unresolved question is whether CCPs should have access to central bank credit facilities and, if so, when."

The introduction of central counterparty clearing houses or CCPs is not likely to be sufficient to ensure efficiency in the over-the-counter derivatives markets, the Bank for International Settlements said on Monday in its quarterly review. (Market News Provided by RTTNews)