Jackie Mesa, who is FIA’s COO and Senior VP of Global Policy, moderated Asia-V’s panel, “The CCP Perspective on the Asia-Pacific Clearing Environment.” Her panelists were Kate Birchall from LCH, Agnes Koh, from Singapore Exchange, Vikram Kothari from NSE Clearing Limited, Daisuke Miyauchi of the Japan Securities Clearing Corporation, Hamish Treleaven from ASX and Simon Walker from Morgan Stanley.
The panelists echoed many of the themes about industry resilience during the March markets meltdown that have become familiar. The panelists agreed that while they were not expecting the volatility, they were nonetheless pretty much prepared for it. There were some hiccoughs early on but those were more closely associated with adapting to work from home than financial issues.
The NSE was somewhat ready for working remotely. They already operated from two locations, Mumbai and Chennai. They then split each of the staffs into work-from-home employees and ones who went to the office. They minimally staffed their offices to make sure they were kept in working order. NSE also experienced some stress dealing with a large number of small members who were not necessarily ready to isolate and work remotely.
SGX had implemented a new margining system in 2019 which served the clearinghouse well during the March volatility. Many of SGX’s clearing members are subsidiaries or affiliates of global organizations that do not always have enough autonomy to manage their own liquidity. To help assure their clearing members’ liquidity, SGX allows 50% of intraday margin calls to be met with non-cash collateral. They also permit intraday collateral to be paid in the product’s currency instead of U.S. dollars.
Although this was a CCP panel, the one FCM there pointed out that steps taken to make CCPs bulletproof increase pressures and risks for clearing members and their customers. The relationship between the CCPs, which are usually monopolies, and their members is contractual and highly regulated but the relationships between clearing members and customers are negotiable, fluid and highly competitive. For example, what happens when an FCM does not pay its CCP on time is well established but, when customers miss deadlines, remedies require using judgment when clearing members have to obtain payments in a crisis.
Treleaven from ASX said that the interplay of operational and financial risk became clear during the March market crises when margin calls ran into the extreme illiquidity of near-cash instruments and clearing members scrambled for cash to pay either variation or initial margins. Koh from SGX pointed out that a clearinghouse does not want to push otherwise strong clearing members to default by exacerbating their liquidity problems.
The G20 reforms were acknowledged to have assured that there were high levels of transaction clearing and that there were sufficient financial buffers at banks and near-bank financial institutions. According to the panelists, the March volatility events should not be closely examined. Recent papers from the Financial Stability Board reviewing the March events and FIA’s paper regarding “anti-procyclicity” measures embedded in margin models were acknowledged as good bases to stimulate further study.