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November 4, 2013

Weekly Roundup | Clearing | 4 November 2013

Streetwise Professor (Craig Pirrong) Looks at Moral Hazard Risk in Clearing

"[…]if the firm already has debt outstanding, under standard pro rata/pari passu default loss allocation mechanisms, holding everything equal, the bank’s default losses if it extends credit to the firm to fund margin almost always exceed, and never are smaller than*, the default losses that it would incur if it had entered an uncleared bilateral trade with the firm. This, in turn, will make the cleared transaction more expensive for the cash-constrained firm, and it will prefer to trade the OTC product." Streetwise Professor: Moral Hazard, Defaulter Pays, and the Relative Costs of Cleared and Uncleared Derivatives Trades.

Moscow Exchange Launches Clearing of OTC Derivatives with Central Counterparty

Moscow Exchange opened its new Standardised OTC Derivatives Market on 28th October. The service allows banks and dealers to clear OTC interest rate, FX, and cross currency swaps through the NCC, which is a qualified central counterparty.  This will reduce participants” capital requirements and increase profitability due to more efficient liquidity management. OTC Space: Moscow Exchange launches clearing of OTC derivatives with Central Counterparty.

SGX Consults on Remote Membership for Clearing of US Customers' Swaps

The Singapore Exchange (SGX) has started a consultation process with the market on the introduction of a new remote membership class. Such a membership would enable futures commission merchants registered with the US Commodity Futures Trading Commission (CFTC) to clear swaps for existing and new US customers through SGX Derivatives Clearing. The Trade: SGX consults on remote membership for clearing of US customers' swaps.

Increasing Credit Risk, Um, Increases Credit Risk

Yeah, it’s not surprising is it? But you might be forgiven for thinking that there’s something here if you read a post by the Streetwise professor on clearing. To save you time, here’s the short version. Deus Ex Macchiato: Increasing credit risk, um, increases credit risk (clearing edition) 

Deutsche Bank's €94 million CVA Loss was "Good Business", Dealers Say

Big loss was accompanied by even bigger capital saving, traders point out. Other banks now working out their own policy on controversial capital charge. Risk: Deutsche Bank's €94 million CVA loss was "good business", dealers say.


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