Home > General Clearing Member in the CCP, a key figure in the Securities Market Reform

General Clearing Member in the CCP, a key figure in the Securities Market Reform

José Luís Rebollo, Expert in securities custody and settlement at Cecabank

The first phase of the market reform has included, in addition to many other changes, the creation of a Central Counterparty Clearing House (CCP) to which the market members, as well as the settlement entities, must belong.

The clearing implies risk management that must be covered by different types of guarantees and that has led to a significant increase with respect to those required before the reform. For independent market members, this increase in the amount of guarantees that must be provided by the CCP translates to a further hindrance to the viability of their business model.

An execution for a cash amount of 1,000,000 euros involves the contribution of approximately 120,000 euros guaranteeing the position. This guarantee must be provided by the market member, until a clearing member accepts the external assignment.

The figure of the general clearing member is fundamental for the market members, since they can transfer the operational risk management and provision of guarantees through external assignment to entities with greater equity and with technical and human capabilities specialised in clearing and settlement operations.

Market members can choose between several participation models in the CCP; Individual clearing member, ordinary non-clearing member or segregated non-clearing member.

In cases in which the market member chooses one of the two non-clearing member alternatives, they must sign a contract with a general clearing member, since without this contract they cannot carry out executions on the market.

Companies that, like Cecabank, have chosen to be general clearing members in the CCP, have had to develop connectivity with this new infrastructure and to form operational teams to provide coverage to their customers, as well as to make reductions in their risk evaluation models in this new environment of responsibilities and services.

Months have passed since the entry into force of the first phase of the reform that, in this time, has confirmed the importance of the general clearing members who, as a result of its intervention, enable efficiency ratios of the system that are similar to those of other European markets in which the CCPs have been operating for years.

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