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November 10, 2012

CCP model secrecy is ‘wrong and unjustifiable’, says BoE official – Risk.net

The link below is to a story at Risk Magazine(subscription required) where :

Edwin Schooling Latter, head of the payments and infrastructure division at the Bank of England, said a variety of new, relatively small derivatives users will be required to clear contracts through CCPs as a result of new regulations – and these participants have a right to know how clearing houses are managing the risk.

and also

We at the Bank of England, as a supervisor of CCPs, will consider that to be your right to know how that is done. In a world where you have to use a CCP, it is not right that the CCP doesn’t have to tell you how it is managing its risks. It is not right that it can claim it is proprietary intellectual capital on how it constructs its margin models. That is not going to be justifiable going forward.

Any bank, fund, client or corporate who applies to join a CCP, in my knowledge, is able to ask for the technical details of how IM is calculated. I know for sure that all direct and I think indirect (client) members of SwapClear are able to ask for the Technical Information Pack which describes how IM is calculated. The TIP provides clear details on the confidence level, the historic time period, the filtering and the overall algorithm, to a level of detail that a Risk Manager would understand and appreciate.

I’m pretty sure if Mr Latter spoke to the CCPs he’d find they provide the details of IM calculations to their members / clients, or even regulators, but don’t yet feel that giving away their hard won intellectual property in public is appropriate.

Can anyone verify my points about the availability of the IM details to members at other CCPs such as ICE or CME?

OTC Derivatives Clearing Summit Europe: CCP model secrecy is ‘wrong and unjustifiable’, says BoE official – Risk.net.


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