MSCI paper considers derivatives clearing

MSCI, the data and index provider, has published a paper studying derivatives clearing as regulation introduces more centrally cleared contracts.

The paper considers a number of factors, including:

• As derivatives move from bilateral to centrally cleared contracts, risk management must shift from managing counterparty credit to managing liquidity for margin needs,

• Managing liquidity for margin is about more than the margin requirements at present; it is also about planning for changes in those requirements as the market changes,

• As a summary metric, the industry should consider a form of Liquidity Valuation Adjustment (LVA): the cost of financing enough liquidity to support current and possible future margin needs.

To read the full research paper click here: [asset_library_tag 5538,Market Insight: OTC Derivatives under Central Clearing]

Jonathan Boyd
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