By Huw Jones
LONDON, Nov 16 (Reuters) - Global regulators have tightened
their scrutiny of whether clearing houses hold enough capital
and cash to avoid calling on taxpayers in a crisis, according to
new guidelines published on Monday by the Financial Stability
Board (FSB).
However, a key demand from a group of major global banks and
investors that clearing houses themselves should take on more of
the financial burden of any market losses has been kicked down
the road.
The FSB, which coordinates financial rules for the Group of
20 Economies (G20), said the recent market turmoil due to the
COVID-19 pandemic had demonstrated the benefits effective
clearing brings to markets.
Clearing houses are already required to have default funds
to ensure a trade is completed even if one side of a transaction
goes bust, and the fund must be big enough to cope with its two
biggest members failing.
The new guidance also now sets out how the default fund must
be replenished after covering losses.
But the shift to central clearing of derivatives to improve
transparency in markets since the financial crisis a decade ago
has further increased the systemic importance of clearing houses
and more work was needed, the FSB said.
Such work next year will consider rules on the use,
composition and amount of financial resources clearers should
have if they find themselves on the brink of collapse and need
"resolving", or closing down, it said.
"This would include assessing whether any new types of
pre-funded resources would be necessary to enhance central
counterparty resolvability," the FSB said.
Earlier this year, nine global banks and investment
management companies said clearing houses needed to have more of
their own capital at risk as an incentive to limit risky
trading.
The group also wants a bigger say in how clearing houses are
run as they worry that they, as members, will end up plugging
the losses if clearers are not properly resourced.
However, clearers argue that it is members such as banks
that create the risk and therefore they should be contributing
to the clearers default fund.
(Reporting by Huw Jones; Editing by David Clarke)