Toronto ON – The recent financial crisis has driven many plans for improving the stability and resilience of the global financial system. One concept, managing the risk of default in securities or financial derivatives markets through central counterparties, receives scrutiny in a report released today by the C.D. Howe Institute.
In “Time for Stability in Derivatives Markets – a New Look at Central Counterparty Clearing for Securities Markets,” Thorsten V. Koeppl of Queen’s University examines the role centralized clearing parties could play in improving system resilience.
These centralized clearing parties, Professor Koeppl explains, are institutions that interpose themselves between counterparties in financial transactions. Professor Koeppl offers a new look at what these institutions could achieve in over-the-counter derivatives trading and short-term funding markets. He places the emphasis on the core services they could provide: the diversification of counterparty risk and the redistribution of default losses among its members.
For the study go to: http://www.cdhowe.org/pdf/Commentary_329.pdf
