This should, in time, ultimately lead to a situation where it is simple and cost effective for any eligible participant to become a direct participant in CHAPS. Improved governance In bringing CHAPS in-house it has been important to develop a strong and robust governance framework and retain the strong ‘user voice’ that CHAPS Co facilitated. At the heart of this was the establishment of the RTGS/CHAPS Board (the Board) chaired by the Bank’s Deputy Governor for Markets & Banking and comprising four non-executive members selected for their experience and expertise, together with a number of the executive, myself included.9 The Board provides a strategic focus with particular attention to the Bank’s role as a systemic risk manager to the CHAPS system, broader financial stability remit and other public interests. The Bank’s operation of CHAPS is subject to the Bank’s full ‘three lines of defence’ risk management model and close engagement and oversight on relevant matters from the Governors, the Bank’s Court of Directors and the Financial Policy Committee. In its capacity as Payment System Operator, the Bank’s delivery of CHAPS is supervised by the Bank’s Financial Market Infrastructure Directorate10 to the same standards as other systemically important payment systems. It is also essential to understand the views of industry, and we have established forums to facilitate an open dialogue with a variety of key stakeholders. This includes the CHAPS Strategic Advisory Forum (SAF) and the RTGS Renewal Programme’s External Advisory Body (EAB).
It is important that we as a central bank understand these changes. At the same time, the financial crisis has made us aware that there are matters to do with trading, clearance and settlement which need to be improved. 2  Multilateral Trading Facilities, which are not required to be a traditional exchange in order to organise trading. 3  One example is EMCF (European Multilateral Trading Facility N.V.), central counterparty for the clearance of Swedish shares that are traded on Chi-X and NASDAQ OMX Europe. Another is EuroCCP, central counterparty for the clearance of shares traded on Turquoise. 2  BIS Review 153/2008  In the United States, two problems have stood out in connection with trading in American credit derivatives. They concern the credit derivatives that are traded on the over-the-counter market. 4 One problem is the counterparty risks. The parties in a credit derivative trade have a credit risk towards each other – the risk of a party losing the whole of the underlying value in a transaction. The counterparty risks have been difficult to understand, which makes them difficult to value. The other problem is the lack of market transparency, which has caused pricing problems and poor liquidity in credit derivative markets. The question of how to reduce counterparty risks in over-the-counter derivatives trading has been raised by the US Federal Reserve and the European Central Bank. One way would be to clear credit derivatives with a central counterparty. How would a central counterparty improve matters?