NEW YORK Feb 5 U.S. securities clearinghouses
should reveal to their members details on how they plan to
protect against defaults and how they invest members' margins,
large U.S. banks said on Tuesday, among other recommendations.
The so-called Payments Risk Committee, a group of banks
which is overseen by the Federal Reserve Bank of New York, made
a series of recommendations meant to safeguard the plumbing of
financial markets against costly breakdowns that sap investors'
The recommendations, which are not legally binding, would
improve the ability of banks and other clearing members to
"measure, monitor, and assess their exposures to and activities"
with clearinghouses, "further supporting a more stable overall
financial system," the 48-page report said.
The U.S. central bank does not formally back the
recommendations, though it supports the committee's work
generally, a senior New York Fed official said. Instead, the
clearinghouses are urged to voluntarily take them up.
Private, over-the-counter trading of complex securities
played a role in the 2007-2009 global financial crisis, which
brought on the deepest U.S. recession in decades.
Lawmakers and regulators responded by requiring that far
more derivatives be cleared by co-called central counterparties
such as LCH.Clearnet and CME Group Inc, which stand
between parties to trade and guarantee obligations even in the
case of a default.
The new focus on clearing has brought anxieties.
In the futures market, for example, the collapse of
brokerages MF Global Inc in 2011 and Peregrine Financial Group
in 2012 led to steep losses, undermined confidence, and raised
questions over clearinghouse margins and guarantee funds.
CME, LCH and IntercontinentalExchange Inc
participated in the committee's meetings. In the spotlight since
the crisis, such entities already provide much information to
regulators and members on how they clear trades.
But the report issued on Tuesday said clearinghouses "may
need to allocate incremental resources and introduce new data
compilation approaches" to meet the recommendations.
The recommendations could help banks better understand how
clearinghouses run and manage any related risks.
The committee wants clearers to be more transparent about
the steps they would take to deal with the default of a clearing
member, and to provide an overview of their investment policy
for the initial margins and default-fund contributions submitted
Clearinghouses would also provide more information on their
collateral structures, and on the way they evaluate and monitor
the credit-worthiness of members, among other recommendations.
Among the banks involved were JPMorgan Chase & Co,
Morgan Stanley, Goldman Sachs Group Inc and Bank