FRANKFURT (MNI) – Clearing derivative trades through central
clearing houses can lead to an improvement in financial stability and
reduce “run risk” by protecting participants from direct exposure to a
firm whose financial health is in question, William Dudley, president of
the New York Federal Reserve, said in the Financial Times.
“But stability demands that central counterparties themselves be
subject to tough rules and appropriate oversight to ensure they can
withstand any wider financial stresses,” Dudley said in a commentary
published in Monday’s edition of the business daily.
“This is where a set of new global standards, released today by the
Committee on Payment and Settlement Systems and International
Organization of Securities Commission, come in,” he continued. “They
toughen requirements for how central counterparties manage risk.”
If regulated and structured properly, global clearing houses could
be more effective in reducing risk than a number of national or local
houses, Dudley argued: “That is because large gross derivatives
exposures can be netted off into more manageable net exposures on a
global rather than local basis.”
Although the financial sector would need time and money to set up
stronger central counterparties, the “moderate” effort would be
worthwhile by “yielding substantial returns in reduced risk and
operational efficiencies,” the central banker said.
— Frankfurt bureau: +49 69 720 142; email: frankfurt@marketnews.com —
[TOPICS: M$$CR$,M$$DR$,MMUFE$,MI$$$$]
