FIA Global has recommended a number of processes for assessing and managing risks that arise from clearing through central counterparties (CCP).

The derivatives trade organisation's position paper is written from the perspective of clearing members, and addresses the risks that CCPs bring to clearing members, their clients, and the market more generally.

“Clearing members are uniquely positioned to assess central counterparty risk and recommend improvements in risk management,” said Walt Lukken, president and CEO of FIA Global. 

“In addition to allowing market participants to hedge risks through central clearing, our members also play an important role as a backstop in the event of a default. Our goal is to ensure that the risks of central clearing are both transparent and effectively managed."

The paper states suggestions including enhancing participants’ ability to assess CCP risk through consistent and transparent CCP disclosures and ensuring initial margin requirements are effective, transparent and predictable to all participants, as well as requiring CCPs to increase margin levels where they are determined to be inadequate.

FIA Global further recommend that wind-downs and liquidations could be avoided by prioritising the continued operations of CCPs using clearly-defined loss allocation tools and effective resolution plans and that enhanced CCP governance could reduce conflicts of interest, aligning incentives, and improving risk management.

The firm says that CCPs have grown in systemic importance since 2009, when the G20 pledged to clear standardised over-the-counter (OTC) derivatives. As a result, there has been increased scrutiny of CCP risk from regulators and market participants.