 Lee Cutrone
Managing Director, Industry Relations
1 September, 2010
Omgeo recently moderated a panel in Canada on the opportunities, challenges and the future of central counterparties (CCPs) and central clearing in the country. Along with the panellists and industry members, we discussed how central clearing can reduce counterparty risk and cost, the demand for advanced and flexible technology solutions, the need for cross-border interoperability and the benefits of a virtual matching utility in Canada.
By spreading out default risk across participants in the marketplace, a CCP facility plays a big role in reducing settlement risk, which also leads to reducing the cost of fails in the Canadian market. As more clearing of trades moves onto central clearinghouses, the increased market efficiency will lead to reduced costs for all industry members. With standardized clearing, new securities types can be added through enhancements to existing models, without significantly driving up costs.
The evolution of central counterparties also drives the growth of advanced and flexible technology offerings in the market. Because most standard derivatives traders have to be connected to a CCP, this forces the industry to upgrade their technology to keep up with their competitors, industry panellists agreed. The upgraded technology will also lead to cross-border interoperability between CCPs, according to the panel participants. In our increasingly connected global trading landscape, CCPs will need to build better communication channels in order to operate efficiently across jurisdictions. The panel participants agreed they’re seeing a growing trend of interoperability between the U.S. and Canadian market.
As the Canadian trading landscape continues to grow and evolve, there’s room for more central clearinghouses, according to the panellists. In addition, as the market expands, continued technological enhancements, improvement of processes and the addition of new security types will create a bigger need for CCPs in Canada and drive competition and efficiency in the marketplace.
Finally, as the Canadian marketplace matures and expands, using virtual matching utilities (VMUs) will help local market participants to grow globally, say the industry members. The post-trade pre-settlement matching processes offered by VMUs are essential for straight-through processing (STP), said one panel speaker. VMUs provide a valuable service to the industry by promoting efficiency, mitigating risk and lowering operational costs.
Overall, the panellists agreed that the benefits of CCPs in Canada outweigh the challenges or concerns the new market structure might raise. Using a regulatory framework that requires all participants to centrally clear trades would alleviate market risk.
Back to Executive Blogs page
Back to Home page |
 |
|
|
