Trade exposures with CCPs - CRR Provision: Difference between revisions

Trade exposures with CCPs - CRR Provision (view source)

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 ===The BIS Paper===
+The BIS paper is predicated on the US [[FCM]] model where a [[clearing member]] or [[intermediate broker]] acts at all times as [[agent]]. It is in the nature of a [[disclosed agent|disclosed agency]] that the [[agent]] is not personally liable to perform of the contract, and does not therefore have credit risk to persons who are. Thus:
+*The starting assumption is that when finally executed, the parties to a futures contract are the client and the [[CCP]]. The intermediate entities are all agents and thus not responsible for performance of the contract. Therefore an intermediate broker’s performance and creditworthiness is not really a concern to an executing broker;
+*It would be most unusual for the executing broker to take any risk on the CCP, so it would only have to apply a risk-weighting against the CCP where it has actually guaranteed the CCP’s performance. This would be unusual, so the default assumption is that no risk weighting would apply.
 ===This talks about [[CCP]]s. What about [[intermediate broker|intermediate brokers]]?===