Definitions

2011 ◽  
Author(s):  
Ruben Lee
Keyword(s):  
Financial Markets ◽  
Central Counterparties ◽  
Derivative Markets ◽  
Central Securities Depositories

For many people, the “infrastructure institutions” in financial markets are the exchanges, central counterparties (CCPs), and central securities depositories (CSDs) that provide the trading, clearing, settlement, and sometimes other core functions for cash and derivative markets. There are, however, also many reasons why the definitions of an infrastructure, an exchange, a CCP, and CSD are all quite opaque. This is important, as the identification of a particular organization as one of these types of institutions can have significant commercial, regulatory, and policy consequences. This chapter aims to provide some basic insights into the definitions and nature of an infrastructure, an exchange, a CCP, and a CSD; and explores the reasons why these concepts are sometimes ambiguous and controversial. The first section considers the meaning and nature of what is an infrastructure. The second provides some comments on the definitions and nature of exchanges, CCPs, and CSDs, and on the functions they deliver. Brief conclusions are offered in the last section.

Running the World's Markets

2011 ◽  
Author(s):  
Ruben Lee
Keyword(s):  
Financial Markets ◽  
Business Economics ◽  
Global Consensus ◽  
Governance Model ◽  
Finance Law ◽  
Key Aspects ◽  
Regulatory Powers ◽  
Market Infrastructure ◽  
Theoretical Issues ◽  
Central Securities Depositories

The efficiency, safety, and soundness of financial markets depend on the operation of core infrastructure—exchanges, central counter-parties, and central securities depositories. How these institutions are governed critically affects their performance. Yet, despite their importance, there is little certainty, still less a global consensus, about their governance. This book examines how markets are, and should be, run. Utilizing a wide variety of arguments and examples from throughout the world, the book identifies and evaluates the similarities and differences between exchanges, central counter-parties, and central securities depositories. Drawing on knowledge and experience from various disciplines, including business, economics, finance, law, politics, and regulation, the book employs a range of methodologies to tackle different goals. Conceptual analysis is used to examine theoretical issues, survey evidence to describe key aspects of how market infrastructure institutions are governed and regulated globally, and case studies to detail the particular situations and decisions at specific institutions. The combination of these approaches provides a unique and rich foundation for evaluating the complex issues raised. The book analyzes efficient forms of governance, how regulatory powers should be allocated, and whether regulatory intervention in governance is desirable. It presents guidelines for identifying the optimal governance model for any market infrastructure institution within the context of its specific environment. The book provides a definitive and peerless reference for how to govern and regulate financial markets.

Regulation and Governance of Market Infrastructure: Global Perspective

2011 ◽  
Author(s):  
Ruben Lee
Keyword(s):  
International Monetary Fund ◽  
Global Perspective ◽  
Regulatory Regime ◽  
Securities Markets ◽  
The World Bank ◽  
The World ◽  
Central Counterparties ◽  
Market Infrastructure ◽  
The International Monetary Fund ◽  
Central Securities Depositories

This chapter examines a unique set of assessments of securities markets and their regulation, from countries around the world, in order to provide a global perspective on policymakers' viewpoints about the regulation and governance of market infrastructure institutions. The assessments were undertaken as part of an initiative called the Financial Sector Assessment Program (FSAP), implemented jointly by the International Monetary Fund and the World Bank. Each assessment evaluates the extent to which a country's securities markets regulatory regime reflects internationally recognized standards. The assessments prepared for the FSAP since its inception in 1999 up until 2006 are analyzed. Together they provide insights on three topics: how exchanges, central counterparties, and central securities depositories are regulated and governed globally; official perceptions on the optimal way of regulating markets and market infrastructure institutions; and the assumptions that are often made when examining the governance and regulation of market infrastructure institutions.

Understanding the Financial Derivatives Instruments

2018 ◽  
pp. 45-59
Author(s):  
Cantürk Kayahan
Keyword(s):  
Financial Markets ◽  
Point Of View ◽  
2008 Financial Crisis ◽  
Futures Options ◽  
Financial Derivative ◽  
The 2008 Financial Crisis ◽  
And Performance ◽  
The Individual ◽  
Derivative Markets ◽  
Derivative Products

Today, core of the individual and institutional decisions are mainly finance and economics related thereby in today's world the most important success and performance indicators are financial results. Concepts which are called as change or innovation found themselves throughs derivative products in financial markets. Basically, the instruments that are known as forwards, futures, options and swaps have left their mark in last 20 years. However, after the 2008 financial crisis, these products have been labeled as toxic, complex or speculative and held solely responsible for the crisis. Whereas, first appearance of the derivative products was directed toward hedging and risk management. Therefore, objective of this study is to academically explain basic operating principles of financial derivative markets from conceptual and functioning point of view, to understand their places in world financial markets and to analyze their pricing examples. In this way, we aim to help students, academicians, and researchers make better assessment of derivative products.

CCPs and CSDs

2011 ◽  
Author(s):  
Ruben Lee
Keyword(s):  
Case Studies ◽  
Board Structure ◽  
European Central ◽  
Central Counterparties ◽  
Board Directors ◽  
The Creation ◽  
The Relationship ◽  
Central Securities Depositories

This chapter presents a series of case studies illustrating how some specific central counterparties (CCPs), and central securities depositories (CSDs) have been governed in particular contexts. The following institutions and contexts are described in turn: the relationship between the Canadian Depository for Securities' owners, its users, and board directors from the company's inception to 2008; the establishment of European Central Counterparty Limited by Depository Trust and Clearing Corporation over the period 2000–2002; the creation of Clearstream International by Deutsche Börse over the period 1999–2002; some aspects of how Euroclear was governed regarding its creation, ownership, and board structure up until 2006; and the creation of LCH.Clearnet and some difficulties it faced over the period 2003–6. A few brief general lessons from each case study are also identified.

Clearinghouses Versus Central Counterparties From Margin Calculation Point Of View

2021 ◽  
Author(s):  
Melinda Friesz ◽  
Kata Varadi
Keyword(s):  
Financial Markets ◽  
Point Of View ◽  
Over The Counter ◽  
Margin Requirement ◽  
Central Counterparties ◽  
Calculation Point ◽  
Securities Trading

Clearinghouses and central counterparties (CCPs) have a notable role in financial markets, namely facilitating securities trading and derivative transactions on exchanges and over-the-counter markets. They have to clear the transactions and carry out their settlements to decrease costs and settlement risk. To efficiently carry out this activity, they need to collect adequate collateral from the trading parties as guarantees. Two main elements of these guarantees are the margin requirement and default fund contribution. Our paper focuses on the margin calculations and emphasizes their notable difference in the case of clearinghouses and CCPs. Our main result is that clearinghouses’ margin requirement is better from a procyclicality point of view; however, CCP margining is more prudent based on our results.

Who Should Regulate What?

2011 ◽  
Author(s):  
Ruben Lee
Keyword(s):  
Regulatory Authority ◽  
Securities Markets ◽  
Central Counterparties ◽  
Different Types ◽  
Regulatory Institutions ◽  
Regulatory Powers ◽  
Central Securities Depositories ◽  
Do So

The question of what regulatory authority over securities markets should be assigned to exchanges, central counterparties, and central securities depositories has long been controversial. This chapter explores this issue in the broader context of examining how regulatory powers should be allocated between government regulators, self-regulatory organizations, and other types of regulatory institutions. The chapter is composed of three sections. In the first, the complexity of the decision as to how to allocate regulatory powers in a jurisdiction is discussed. The second section lists and analyzes crucial factors and constraints that affect the relative merits of allocating regulatory powers to different types of institutions. The last section encapsulates these discussions and presents in a simple and accessible manner key lessons about how best to allocate regulatory powers in the securities markets. In order to do so, nine general propositions are articulated.

Do central counterparties reduce counterparty and liquidity risk? Empirical results

2021 ◽  
pp. 1-10
Author(s):  
Carlos León ◽  
Ricardo Mariño ◽  
Carlos Cadena
Keyword(s):  
Financial Markets ◽  
Financial Institutions ◽  
Liquidity Risk ◽  
Counterparty Risk ◽  
Financial Contracts ◽  
Empirical Results ◽  
Forward Market ◽  
Central Counterparties ◽  
Clearing And Settlement ◽  
First Time

A central counterparty (CCP) interposes itself between buyers and sellers of financial contracts to extinguish their bilateral exposures. Therefore, central clearing and settlement through a CCP should affect how financial institutions engage in financial markets. Though, financial institutions’ interactions are difficult to observe and analyze. Based on a unique transactional dataset corresponding to the Colombian peso non-delivery forward market, this article compares—for the first time—networks of transactions agreed to be cleared and settled by the CCP with those to be cleared and settled bilaterally. Networks to be centrally cleared and settled show significantly higher connectivity and lower distances among financial institutions. This suggests that agreeing on central clearing and settlement reduces liquidity risk. After CCP interposition, exposure networks show significantly lower connectivity and higher distances, consistent with a reduction of counterparty risk. Consequently, evidence shows CCPs induce a change of behavior in financial institutions that emerges as two distinctive economic structures for the same market, which corresponds to CCP’s intended reduction of liquidity and counterparty risks.

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