The risks for Buyside in moving to Central Clearing model


A great article by Bill Hodgson, looking at the complexity for buyside firms in moving from bilateral to centrally cleared (CCP) and margined model.

StreetWise Professor has his jaded view on this topic here Read It and Scream, including this great quote:

The bitter irony here is that many derivatives end users (real money investment funds, industrial hedgers) did not pose any real systemic risk under bilateral structures.  But forcing them to clear drives them to utilize funding mechanisms that are systemically risky.  As one big corporate end-user told me: clearing mandates have transformed credit risks into liquidity risks: I can manage the first, but the second scares me.

Just remind me, Dodd Frank was all about reducing systematic risk wasn’t it?

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