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January 21, 2021

How the skin in the game incentivises CCP risk management

Incentives are at the heart of CCP’s robust risk management. Our newly published paper delves into the key CCP concept of skin-in-the-game (SIG), considers its purpose as an incentive for CCPs’ risk management, analyse SIG requirements across different jurisdictions and compares it to the rest of the default management resources available at CCPs to deal with market stresses.

Incentives are at the heart of CCP’s robust risk management. A newly published paper delves into the key CCP concept of skin-in-the-game (SIG), considers its purpose as an incentive for CCPs’ risk management, analyse SIG requirements across different jurisdictions and compares it to the rest of the default management resources available at CCPs to deal with market stresses.

Differently from the SIG, a CCPs’ default fund as contributed by clearing members is meant to cover potential losses caused by clearing member defaults in scenarios beyond those included under the defined confidence interval covered by the initial margin (i.e. tail risk).

The current regulatory calibration of the SIG is adequate to ensure that it represents a strong enough incentive for CCPs to perform robust risk management.

Download the full EACH CCP paper here: https://www.eachccp.eu/wp-content/uploads/2021/01/EACH-Paper-Carrots-and-sticks_How-the-skin-in-the-game-incentivises-CCPs-to-perform-robust-risk-management-January-2021.pdf


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