Report from the 2008 Global Central Counterparty Summit

by Judith Inosanto

More than 100 representatives from 30 major central counterparties (CCPs), along with exchanges and marketplaces, global financial firms, regulators, depositories and other financial institutions, gathered in Tokyo in mid-April for a summit organized by the global industry group, CCP12. Japan Securities Clearing Corporation (JSCC) and Tokyo Stock Exchange hosted the event.

The conference reaffirmed the critical roles that CCPs continue to play in effectively managing and minimizing systemic risk within the global financial markets and acknowledged their potential to jointly manage cross-border investment risks.

“The importance of the clearing and settlement functions is rapidly increasing,” said Yoshimasa Yamashita, president and CEO, JSCC. “Now is the perfect time to exchange ideas on how CCPs can contribute to the development of global markets,” Yamashita said in his opening remarks. “I strongly believe that this conference will have significant meaning for the CCP industry as a forum to discuss relevant issues with our respected colleagues from all over the world.”

Yoshimasa Yamashita, president and CEO, Japan Securities Clearing Corporation

Growing agenda

The conference endorsed the formation of a 12-member Executive Committee to govern the group’s widening global agenda. Anne T. Brown, chief risk officer, Australian Securities Exchange Ltd. (ASX), was elected chairperson of CCP12 for the coming year, succeeding Amarilis Prado Sardenberg, COO, Brazilian Clearing and Depository Corporation (CBLC), who has chaired CCP12 since 2006. Sardenberg will continue as a member of the new Executive Committee.

“Our several days of dynamic face-to-face discussions, which culminated four months of global teamwork in preparing the conference, have created very positive momentum for CCP12’s active, ongoing agenda,” said Brown.

Newly elected as vice chairs of CCP12 are Diana Chan, CEO of European Central Counterparty Limited (EuroCCP), representing DTCC; and Rory Cunningham, director of public affairs, LCH.Clearnet, and chair of European Central Counterparty Clearing House Association (EACH).

Conference highlights

DTCC’s own CCP subsidiaries, NSCC, FICC and EuroCCP, played an active role in developing the conference, helping to set the agenda, coordinating several panels, as well as leading the working group session on business and commercial issues. Many of the presentations and background readings are available on a special section on the jscc.com website.

Amarilis Prado Sardenberg, COO, Brazilian Clearing and Depository Corporation

The first panel featured senior CCP executives including Donald F. Donahue, DTCC chairman and CEO; Roger Liddell, CEO, LCH.Clearnet; Sundararaman Ramamurthy, senior vice president, National Securities Clearing Corporation Ltd. (NSCCL - India); and Thomas Book, member of the Executive Board, Eurex Clearing AG.

“We see increasing demands on liquidity platforms, be they traditional exchanges, MTFs [multilateral trading facilities] or any other form they take, to support trading in many geographic markets,” Donahue said. “As that trend unfolds, marketplaces and trading firms will require that their CCPs provide risk management across all the markets they serve, heightening the need for these CCPs to interoperate.”

Robert McGrail, DTCC executive managing director, moderated a panel of market participants who gave their view of trading markets and CCP developments. On that panel, Matt McGuire, chief administrative officer of Merrill Lynch Japan Securities, commented, “As users of many CCPs, we are encouraged that this conference agenda is focusing on the evolving global trading landscape where challenges in these diverse markets are abundant, and that our CCPs are asking us to identify the key challenges we are facing.”

Discussions zeroed in on emerging issues and challenges facing CCPs, including:

• Business development and commercial issues: key drivers of change and related impacts on CCPs, including volume growth, the emergence of new liquidity pools, trading/clearing consolidation and competition, and the trading in new financial instruments.
• Enhancement and evolution of risk management strategies and practices to raise global standards: margining and stress testing developments, CCP liquidity strategies and greater cross-jurisdictional information-sharing to better prevent and/or address major market crisis events.
• Legal/regulatory issues and trends: fostering dialogue on progress and co-operative arrangements to achieve more common standards and collaboration across CCPs including CPSS-IOSCO Standards, the E.U. Code of Conduct on clearing and settlement and other developments impacting CCP activities, such as interoperability and cross-border clearing. (CPSS is the Bank for International Settlements’ Committee on Payment and Settlement Systems and IOSCO is the International Organisation of Securities Commissions.)

Donald F. Donahue, DTCC chairman and CEO

“As we look to the future, CCP12 is setting an active agenda to foster more collaboration among our organizations and to provide a unified voice on global issues in which we share common interests, such as mutual recognition among financial regulators,” said Chan.

Initiatives added to CCP12’s agenda included drafting a white paper on the value CCPs bring to support growth and risk mitigation in global capital markets and the formation of a CCP12 working group to review and potentially update the CPSS-IOSCO standards for CCPs. The group agreed that bilateral links among organizations should remain voluntary, and that members will broadly share information on best practices related to cross-border links and interoperability.

“We have exchanged views on how CCPs are likely to evolve in order to deal with the growth of cross-border trading,” said Sardenberg in closing the conference. “We have seen CCPs that will offer services beyond their national boundaries and new possible commercial and business arrangements are likely to come on stage. One thing is clear, in order to attend to the expectations and demands from market participants and trading infrastructures, we already have an agenda for the next 20 years. All the points raised will be extremely valuable for us to build up the CCP12 mission as well as to define the issues to tackle.” @