The Creditworthiness of CCPs and the Global Clearing Member Network


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Central Counterparty Clearing Houses (CCPs) have seen increased scrutiny in the wake of a massive $130 million default on the Nasdaq Commodities exchange in 2018. It was revealed that the default was caused by an individual Norwegian trader acting as a direct clearing member of Nasdaq. The European Securities and Markets Authority (ESMA) has since announced that it will consider enhancing supervisory practices for CCPs.

It is clear that CCPs lie at the epicenter of the global financial markets and that with the encouragement of global regulators they have consolidated and grown stronger since the global financial crisis. However, there is broad recognition from those in the CCP community that there is room for improvement in enhancing the security and performance of CCPs under severe stress.

This whitepaper examines the complex interconnected nature of the “CCP Network” – Central Counterparties, their clearing members, and the underlying clients of these members – and looks at the potential application of Consensus credit data to help bring transparency and alignment to the network.

The interconnectedness of the CCP Network is an integral part of the global financial system. It is critical to understand the creditworthiness of these nodes and how they interact, impact and potentially move and mitigate systemic risk.

In the paper, we look at some of the Consensus credit risk data available on the three distinct parts of the CCP network and how this data changes over time. These three parts are:

1. Central Counterparty Clearing Houses (CCPs)

Credit Activity (29 CCPs)

This chart shows the credit activity of a group of 29 CCPs. It is interesting to observe the variation of the market view of CCP creditworthiness month-on-month over time. The green lines indicate where the aggregated credit quality of the group of CCPs has improved over time; the red lines indicate where it has deteriorated.

2. CCP Clearing Members

Credit Trend for 49 Clearing Members of CME Group

This chart shows the aggregated Consensus credit trend of 49 clearing members of the Chicago Mercantile Exchange (CME) Group. Consensus credit quality shows improvement over time.

3. Clients of CCP Clearing Members (Buy-side / Funds)

Credit Distribution of 1,118 Funds Under Management of BlackRock Inc

This chart shows the Consensus credit distribution of 1,118 funds under the management of BlackRock Inc. The credit quality of these funds is concentrated in the aa- category.

This paper aims to identify how Consensus credit data can play a role in helping participants assess the true risk level that they face, and how – collectively – the network participants can prevent potential triggers of CCP default waterfalls.

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Credit Benchmark brings together internal credit risk views from over 40 leading global financial institutions. The contributions are anonymized, aggregated, and published in the form of consensus ratings and aggregate analytics to provide an independent, real-world perspective of credit risk.
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