Design Choices in Central Clearing: Issues Facing Small Advanced Economies

Abstract

For some contracts traded between some institutions, central clearing is becoming mandatory. Regulatory incentives are also being altered to encourage the use of CCPs where reasonably possible, and to ensure that where central clearing is not appropriate capital is held against the risks that arise. In this paper, we review some of the issues involved in deciding which transactions should be centrally cleared, where CCPs should be located, and how they should be designed, managed, and regulated. As derivatives reform progresses, the soundness of the central counterparties becomes more important to the soundness of the financial system, so these questions are important.

Keywords: Central clearing, CCPs, clearing mandate

JEL Classification: G28, G23