The research paper, ‘Who Pays? Who Gains? Central Counterparty Resource provision in the post-Pittsburgh World’ presents a conceptual framework exploring whether regulatory changes since the Pittsburg Summit could be a catalyst for clearinghouses and making the financial system more stable.


The 2009 Pittsburgh Summit led to regulatory reforms mandating the clearance of a large portion of the OTC derivatives market through central counterparties (CCPs). CCPs are institutions that centralize and manage the counterparty risk of financial transactions through funds and guarantees from market participants and the CCP itself. Before the financial crisis, most OTC derivatives were traded bilaterally without the involvement of CCPs, and market participants managed their own counterparty risk using a variety of industry standards. Since the financial crisis, CCPs have grown in importance due to the volume of transactions they manage and the quantum of financial exposures they warehouse. Consequently, regulators have been trying to enhance their resilience through regulatory standards. 

Despite these regulatory efforts, the authors of Who Pays? Who gains? Central Counterparty resource provision in the post-Pittsburgh world identify misalignment between the innate structure of CCPs and the policy goal of enhancing financial stability. 


CCPs were originally developed to manage “club goods” in the financial system based on a traditional model of loss mutualization among a limited number of market participants, called clearing members. Club goods are characterized by being excludable; only clearing members can access CCP services. Club goods are also non-rivalrous, meaning that using CCP services by one clearing member does not prevent the simultaneous use of those services by other clearing members. 

On the other hand, financial stability is a “public good” in the sense that it is both non-excludable (i.e., one cannot prevent someone from experiencing the benefits of financial stability regardless of their contributions to the financial system) and non-rivalrous. Shifting CCPs from the excludable to the non-excludable dimension has given rise to many of the tensions we now observe in derivative markets. 


The authors argue that a new generation of clearinghouses could alleviate growing tensions. These clearinghouses would preserve the functional operations of CCPs suited to manage public goods while incorporating new functions to manage a more interconnected financial system. This new structure would better match the incentives of market participants and the needs of individual markets.

The paper written by Fernando Cerezetti (Ice Clear Europe and European Association of CCP Clearing Houses), Jorge Cruz-Lopez (FNA, previously Bank of Canada), Mark Manning (Financial Conduct Authority), and David Murphy (London School of Economics, formerly Bank of England), was featured in the Journal of Market Infrastructure.

You can read the paper and the rationale behind the newly proposed structure here.

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