Shanghai-based finance body launches industry white paper

Organization’s profile can promote city as a hub

The Global Association of Central Counterparties, known as CCP12, published its white paper on "Incentives for Central Clearing and the Evolution of OTC Derivatives - A CCP12 Report" in Frankfurt, Germany on Monday, in an effort to further the industry adopting the best clearing and risk management practices.

Central counterparty, known as CCP, is a type of financial market infrastructure, which takes on counterparty credit risk between parties to a transaction and thereby ensures the performance of open contracts. It becomes the counterparty to the buyer and the seller and guarantees the terms of a trade even if one party defaults on the agreement.

CCP12 was formed in 2001 by major central counterparty organizations across Europe, Asia and the Americas, with its 12 founding members giving it the name CCP12, although its membership has now grown to 36.

The association, officially registered in Shanghai in 2016, becoming the first international financial association located in China, and counts London Clearing House, Nasdaq Clearing AB, and Shanghai Clearing House among its members.

The new report reflects on post-crisis reform of the global OTC derivatives market and examines the progress made in central clearing with emphasis on the incentives, trade processing and costs in the centrally cleared and uncleared markets based on industry practices.

Speaking at the news conference, association Chief Executive Marcus Zickwolff said “This report has provided significant value for regulators, financial market infrastructures (known as FMIs) and market participants, at the 10-year mark after the G20 leaders' commitment that standardized OTC derivatives should be cleared through central counterparties.

“It has demonstrated the developments and constraints of central clearing in the global financial markets, serving as a reference for regulators to continue the reform in OTC derivatives market; for FMIs, especially central counterparties in emerging markets, to better develop central clearing businesses; and for market participants to comprehensively understand the advantages of central clearing and make informed decisions about post trade solutions.”

Xu Zhen, chair of CCP12, said: “After the global financial crisis, the central counterparties' role in improving the efficiency of the financial market and mitigating the systemic risks is widely recognized.

“At present, the global clearing rate has reached 60 percent. Going forward, there are markets including foreign exchange and options markets, which may need further incentives to clear,” Xu said.

“CCP12 will continue to leverage its expertise to respond to regulatory initiatives, promote global industry best practices, and contribute to the development of the clearing industry.”

Since CCP12’s arrival in Shanghai three years ago, the association has pledged to work on lowering the systematic risk of global markets and improving market efficiency.

Zickwolff said he believes CCP12's arrival in Shanghai reflects China's progress in financial market development and risk prevention and it was “a very clear signal why the central counterparties trust an office based in shanghai to establish that association”.

It will also help attract more international financial organizations and professionals to Shanghai, he added, increase the city's global exposure and influence, and contribute to the city's goal of becoming an international financial center.