Do central counterparty houses ensure the financial markets as regulators intend to do via the mandatory clearing requirement for derivatives?

Abstract

This thesis is going to try to answer the following question: do central counterparty houses (CCP) ensure the financial markets as regulators intend to do via the mandatory clearing requirement for derivatives?

The size of CCPs had skyrocketed in the last years mainly due to the mandatory clearing requirements. Currently, the EU and the US are requiring Interest Rate Swaps and Credit Default Swaps to clear in agreement with their respective laws, European Market Infrastructure Regulation and Dodd-Frank Act. CCPs are expected to keep growing as more clearing requirements will probably be establishing.

Many issues are rising about the service provided and the safety of theses newly became too big too fail CCPs. As a matter of fact, few CCPs are ensuring together derivatives for more than 200 trillions of dollars. Are really CCPs able to ensure all cleared trade? Are the current CCPs able to face a financial crisis (such as in 2007)? Does the clearing requirement make the financial markets safer?

While analysing the aims and the scopes of the EU and the US regulations, I reviewed the most relevant risks for the current CCPs. As the total risk is seen at a high level by major banks, I investigated the default framework for the event of a collapsing CCP.