Non-dealer Clearing of Over-the-counter Derivatives

Ashwin Clarke and Paul Ryan
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Ashwin Clarke: Reserve Bank of Australia
Paul Ryan: Reserve Bank of Australia

RBA Bulletin (Print copy discontinued), 2014, 77-88

Abstract: In 2009, the G20 leaders agreed that all standardised over-the-counter (OTC) derivatives should be cleared through central counterparties (CCPs). Accordingly, an increasing proportion of OTC derivatives are now centrally cleared, particularly where the trading counterparties are large ‘dealer’ firms. However, for many smaller financial institutions and non-financial corporations, there remain material challenges in adopting central clearing. Such firms usually access CCPs indirectly through arrangements with larger dealer firms – so-called ‘client clearing’ arrangements. While non-dealers have long used such arrangements for their exchange-traded activity, increased CCP clearing of OTC derivative products has prompted market participants and policymakers to examine more closely these arrangements. Aspects of the design of client clearing arrangements, such as collateral requirements, operating schedules, and the degree of segregation of positions and collateral, can all have material implications for the costs and risks a firm faces in its OTC derivative trading activity. Some of these aspects could also have broader implications for financial stability.

Keywords: central counterparties; central clearing; client clearing; counterparty credit risk; margin and collateral; over-the-counter derivatives; regulatory reform; segregation and portability (search for similar items in EconPapers)
Date: 2014
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