Cough cough… doesn’t a clearing house fail when its remaining participants fail to recapitalise it after the default of a major participant within the group (that busted the clearing house in the first place)? 👀 https://t.co/zaoYvqE0Bj
— JustDario 🏊♂️ (@DarioCpx) April 26, 2024
- Post-2008 crisis, derivative clearing mandated, necessitating clearers backed by default funds.
- Clearers’ failure could disrupt financial stability; regulators must ensure orderly resolution.
- New FSB standard outlines seven tools, including “bail-in” bonds, for effective resolution.
- Regulators required to publicly declare selected tools; may need legal changes for implementation.
National Securities Clearing Corporation (NSCC), which is a subsidiary of the Depositary Trust Clearing Corporation (DTCC), was established in in 1976
Options Clearing Corporation (OCC) is a U.S. clearing house based in Chicago. It specializes in equity derivatives clearing providing central counterparty (CCP) clearing and settlement services to 15 exchanges. Instruments include options, financial and commodity futures, security futures and securities lending transactions. Like all clearing houses, the OCC acts as guarantor between clearing parties ensuring that the obligations of the contracts they clear are fulfilled. It currently holds approximately $100 billion of collateral deposited by clearing members and moves billions of dollars a day.
This warning to regulators suggests that there may be concerns about the stability and resilience of clearing houses in the financial system. It could hint at underlying issues such as increased market volatility, financial distress among market participants, or systemic risks that could potentially lead to the failure of these clearing houses.
If a clearing house were to fail, it could have severe consequences for the financial system. Clearing houses play a crucial role in ensuring the smooth functioning of financial markets by guaranteeing the completion of trades and managing counterparty risk. If a clearing house were to fail, it could lead to disruptions in the settlement of transactions, create uncertainty and panic among market participants, and potentially trigger broader financial instability. Additionally, the failure of a clearing house could result in significant losses for investors and counterparties, leading to a loss of confidence in the financial system overall.
h/t jlee2027