RT Journal Article
SR Electronic
T1 CCPs: <em>Their Risks, and How They Can Be Reduced</em>
JF The Journal of Derivatives
FD Institutional Investor Journals
SP 26
OP 29
DO 10.3905/jod.2012.20.1.026
VO 20
IS 1
A1 John Hull
YR 2012
UL https://pm-research.com/content/20/1/26.abstract
AB One key feature of the Dodd—Frank Act is the requirement that the majority of derivatives contracts should be cleared through central counterparties (CCPs). This feature will substantially increase transparency and decrease exposure to counterparty credit risk in the over-the-counter (OTC) derivatives business, both of which are highly desirable from the point of view of the trading public. But a number of other issues are raised in the process, including the effect of counterparty risk vis-à-vis the clearinghouse, as Hull elaborates. He then suggests an alternative procedure for unwinding the positions of a defaulting clearing member, which would reduce the exposure of the clearinghouse itself to the risk of insolvency following a major member default.TOPICS: Derivatives, counterparty risk, exchanges/markets/clearinghouses