Central counterparties and the future of global financial plumbing

Central clearing of derivatives has emerged in both the US and Europe as a key policy initiative to buttress financial stability. Reliance on central counterparties holds the promise of limiting counterparty risk and the cascade of defaults that result from highly interconnected financial participants. However, granting more responsibility to this complex and sometimes ill-understood industry creates a range of new challenges: what will be the overall effect on systemic risk? How will centralized clearing modify the behaviour of market participants? Is there a risk that regulators may be creating a whole new category of “too-important-to-fail” financial institutions? What are the risks of regulatory arbitrage and unfair competition if some jurisdictions outside of the US and EU opt for a laxer approach? How can regulatory regimes be made compatible and interoperable on a global basis?

The guest speakers were Peter Norman, London-based journalist and writer and Ruben Lee, Founder and CEO of the Oxford Finance Group.

The discussion was moderated by Nicolas Véron, senior fellow at Bruegel.