Direct clearing members of a CCP are required to share the losses and take over positions in the event that another member fails – which requires that they have large financial resources and a wide scope of activities. But here lies an important challenge.
In carrying out the G-20 mandate requiring all OTC derivatives to be centrally cleared, it is essential to ensure that we do not unduly concentrate risk in a relatively small number of institutions that are direct clearing members of global CCPs. These were the very institutions that spread and amplified contagion through the global financial system in 2008.