Originally appeared in MiFID Monitor
Following the meetings last month hosted by the Federal Reserve Bank of New York and the European Commission, the European Central Bank (ECB) has joined the debate concerning the introduction of central counterparties (CCPs) for credit default swaps (CDSs). The ECB hosted its first meeting this week and participants included potential providers of such CCPs, their regulators and representatives from the sell side and the buy side.
The ECB indicated its support for the introduction of CCPs in this market, in line with the views of the Financial Stability Forum and of the European Commission. It underlined the importance of reducing counterparty risk and of enhancing transparency in OTC derivatives markets, especially in those parts of the market that are of systemic importance, for example, the CDS sector.
It publicly supported the introduction of CCPs for OTC derivatives as an appropriate solution to tackle counterparty risk and market transparency. The ECB indicated that CCPs, by virtue of concentrating outstanding positions in one place, reduce the counterparty risk to which market participants are exposed. Moreover, it said that they also increase market integrity, transparency and the availability of information, as well as standardising the criteria for evaluation of exposures and freeing up collateral.
Participants at the meeting also underlined the merits of multiple solutions in general and of at least one European solution.