The Role of Central Counterparties

Joint Conference of the Federal Reserve Bank of Chicago and the European Central Bank

Frankfurt, Germany, April 3–4, 2006

On April 3–4, 2006, the Federal Reserve Bank of Chicago (FRBC) and the European Central Bank (ECB) held a joint conference on the role of central counterparties (CCPs), hosted by the ECB in Frankfurt, Germany. The conference was devoted to public policy, research and legal issues, in particular clearing, risk management functions and procedures, and other matters related to CCPs. The conference was intended to provide a forum for a multidisciplinary "law and economics" discussion of key public policy and research oriented issues relating to central counterparty clearing.

Keynote presentations were made by: Randall S. Kroszner, Governor, Board of Governors of the Federal Reserve System; Michael Moskow, President of the Federal Reserve Bank of Chicago; Tommaso Padoa-Schioppa, Former Member of the Executive Board of the European Central Bank; and Jean-Claude Trichet, President of the European Central Bank. A number of industry executives and research economists also evaluated the benefits, costs, and potential impact of CCPs as well as the role of alternative risk management techniques on clearing and settlement risks.

Topics on the agenda included:

• Efficiency and systemic importance of current and evolving CCP structures, including corporate governance/ownership structures;
• Management of credit, liquidity, operational, legal and other risks by CCPs;
• Mutualization of counterparty credit risk-optimal risk mitigation frameworks;
• Cost and benefits of CCP structures;
• Innovations, competition, and integration initiatives among CCPs;
• Relationship between central banks, CCPs, and their clearing participants;
• Cross-product clearing, over the counter versus on-exchange; and
• Policy issues related to the design, operation, oversight, and supervision of CCPs.