RSM432H1 Lecture Notes - Lecture 8: Financial Stability Oversight Council, Swap Execution Facility, Liquidity Risk
Document Summary
Regulators have better oversight of all trades happening with ccps. With isdas in bilateral clearing, parties have more control over initial margin, stress. Dodd-frank: new bodies to monitor systemic risk. Regulations requirements: standard otc transactions between financial institutions must be cleared through ccp. This reduces systemic risk concerns: nonstandard otc transaction, some fx transaction, transactions with end users can continue to be cleared bilaterally, otc standardized derivatives to be traded on electronic platform. Known as swap execution facilities: all otc trade data sent to repository for monitoring, result is trading otc and exchange derivatives become very similar. Counterparty default with ccp trade: ccp closes out position using available funds: Most derivative agreements contain cross-default clauses: ccp has ring-fenced default fund to deal with default situations. Netting: features in both isda agreements and ccps, all transactions considered to be a single transaction in: Collateral calculations: depends on credit rating. More collateral needed if you are downgraded.
