Goldman Sachs, J.P. Morgan, Citi and more call for regulatory action on clearing houses

BlackRock, Goldman Sachs, J.P. Morgan Chase, Allianz, Citi have published a joint paper recommending safety enhancements on clearing houses.

Société Générale, State Street, T. Rowe Price, and Vanguard were also involved in the paper. The joint research presented detailed recommendations from both buy-side and sell-side perspectives to further enhance the safety and soundness of central counterparties (CCPs), also known as clearing houses. In the spirit of ensuring on-going financial stability in times of market disruption or crisis, the paper seeks to better align incentives between CCPs and market participants, and ensure that clearing member and end-user liabilities are limited and manageable.

The cited companies’ recommendations address key elements of resilience, recovery, and resolution of a CCP and include ensuring that CCPs are subject to appropriate risk management standards and have sufficient financial resources in place to reduce the likelihood of ever needing to enter a recovery or a resolution process, introduction of a clearing member ballot to support CCP recovery, or regular reviews of CCP rulebooks to be conducted by resolution authorities in conjunction with CCP primary regulators and systemic risk regulators to ensure a common understanding of CCP risk.