Wednesday, December 22, 2021
Amid exam grading and the hustle and bustle of the holiday season, don't overlook the FSOC's recently released 2021 Annual Report. Even if you don't have time for a thorough reading (I didn't!), its 10 page Executive Summary provides a really comprehensive overview.
Of course, I did read the section about clearing (pp. 116-119) and particularly appreciated its helpful graphs and discussion of intraday margin calls related to the trading of GameStop shares in January 2021 (see BLPB posts on this topic here and here). I also liked that the short section on clearing in the Executive Summary mentioned the possibility of both clearinghouse default and non-default losses. I hope the increasing focus on the latter issue continues, as much remains unsettled in this area. Were a clearinghouse to experience both types of losses, it is unlikely that it would be able to separate them out completely. This short section ends with the statement: “Finally, the Council encourages regulators to continue to advance recovery and resolution planning for systemically important FMUs [clearinghouses are FMUs] and to coordinate in designing and executing supervisory stress tests of multiple systemically important CCPs.” (p.14). As 2022 starts soon, I also want to encourage such action. It’s disappointing that over eleven years after Dodd-Frank’s passage, this area has yet to be finalized. I wrote about this issue in Incomplete Clearinghouse Mandates.
Stay tuned if you want more on clearing. A slightly delayed post, Part II: Turing’s Clearing and Settlement, is coming to the BLPB soon!