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April 8, 2015

What if the Doctors of OTC Derivatives themselves fall Sick?

After the 2008 financial crisis, more emphasis was given to OTC Derivatives market in order to make it more transparent and fail proof. To achieve the same, new laws and regulations were introduced and implemented in various parts of the world. One of the main requirements was central clearing of OTC Derivatives via CCPs. Though the objective was to avoid counterparty risk of default, no emphasis has been made till now to handle the situation if a clearing house itself defaults. This paper focuses on what happens if a clearing house defaults and possible plan of action by the Fed to tackle this situation. In this paper, I refer clearing houses to "Doctors of OTC Derivatives".

The attached pdf "What if the Doctors of OTC Derivatives themselves fall Sick" contains more details of the same.


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