Frances Maguire
Frances Maguire

A Central Counterparty model for FX – does it make sense?

Frances Maguire looks at the arguments for introducing a CCP for spot FX and the benefits it could bring.

First Published: e-Forex Magazine 19 / Leader / July, 2005

Many believe the FX markets are both sufficiently effective and efficient as well as too large to establish a CCP for FX. Frances Maguire looks at the arguments for introducing a CCP for spot FX and the benefits it could bring.The single most influential event, that seemed to negate the need for a central counterparty (CCP) for foreign exchange, was the launch of CLS. It has been argued for many years that the interbank market works perfectly well without a CCP, and that the size of banks’ daily volumes in FX would mean the scale of capitalisation required to fund margin calls would be cost prohibitive. But regulators have long raised an eyebrow at the large unregulated market operating on their doorstep – long before the clearing model of the derivatives market was being applied to equities and then to other over-the-counter instruments such as swaps and repos. Even with the launch of simultaneous settlement in 2002, it is a debate that refuses to go away. The two questions that are...continued

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