Securities and Derivatives Central Counterparties in the United States

ABSTRACT:

This chapter offers the US perspective on securities and derivatives central counterparties (CCPs) and focuses on the macro-prudential and financial stability role bestowed on CCPs by post-crisis policymakers. It unpacks the peculiar economic and governance dynamics of clearinghouses and their delicate incentives structure and focuses on the regulatory framework built by post-crisis policymakers. Interestingly, in the United States, the market and regulatory structure of securities and derivatives CCPs substantially differentiate, with securities CCPs organized as subsidiaries of a stand-alone member-owned firm, and derivatives CCPs being vertically integrated in investor-owned for-profit financial groups. The chapter looks at the two different market structures and ownership models of securities and derivatives clearinghouses and draws comparative analyses of the US and EU approaches to the regulation of clearing markets and CCPs. US derivatives investor-owned CCPs, as their EU peers, present unique agency costs between clearinghouses' members and shareholders, where the members are the final risk bearers of the business but without control rights, and the shareholders retain control rights, but with limited skin in the game. The chapter concludes with some policy considerations on how to strengthen CCPs resilience and how to more effectively mitigate the agency costs that spills from the members-shareholder divide.