Clearing houses criticise push for more transparency

Clearing houses have pushed back against plans by global securities regulators to force more transparency into the industry, arguing that their operations and market confidence could be damaged by publication of sensitive data.

The arguments were put forward by operators such as CME Group, Eurex, LCH.Clearnet and the Depository Trust and Clearing Corporation, which own some of the largest market risk management houses, in comment letters published on Friday.

The groups and industry trade associations were reacting to proposals last September from the International Organisation of Securities Organisations, an umbrella body for central banks.

Iosco proposed tighter quarterly disclosure for standards on total value of default resources, initial margin rates on individual contracts and the size of “haircut” that would be made to collateral eligible as initial margin. The call was made in conjunction with the Bank for International Settlements.

However the industry has rejected many of Iosco’s proposals. The European Association of Clearing Houses, which represents 23 institutions, argued that clearing houses should not be required to publish sensitive information such as the positions clearing members and their customers or the collateral held against them.

“If they were made public, [it] would undermine the ability of clearing houses to conduct risk management in an effective manner, and the results of testing which, if taken out of context or misinterpreted, could inadvertently damage market confidence as well as the clearing houses’ reputation,” it said in a letter.

The CCP12, a global trade body of 31 central counterparties, warned that Iosco should be “cognisant of the ability of sophisticated parties to potentially reverse engineer confidential and sensitive information”.

It also said that some institutions were not authorised to disclose the kinds of information Iosco wanted under local laws.

The CCP12 also said the standards were unlikely to be finalised before the end of the second quarter and said Iosco’s proposals for quantitative reporting from January 1 was feasible. It also called for “a phased implementation process that allows for some of the more detailed reporting to begin at least one year from the date the standards are approved for financial market institutions”.

Eurex Clearing, owned by Deutsche Börse, said: “The level of detail of the information to be disclosed publicly goes far beyond the European Market Infrastructure Regulation and Dodd Frank Act requirements on disclosure by clearing houses.”

Some market participants have argued that clearing houses’ standards for assessing risk are opaque and make it difficult for dealers to choose between rival services.

The International Swaps and Derivatives Association, a trade body for market participants, welcomed the details and called for more details and standardised data to help customers perform due diligence.

Eurex said it supported the disclosure of some data to judge clearing house risk but added: “Since the risk methodologies of clearing houses are unique and differ, the resilience of a clearing house to absorb defaults and external shocks should be judged by the respective regulators and rather should not be subject to public discussion.”

Iosco will review the comments and plan to publish the final report later this year.