New Delhi, March 28: The Reserve Bank has made a case for further tightening the regulatory mechanism for clearing houses saying they are critical for smooth functioning of the markets.
“Central counter-parties have emerged as critical elements for the smooth functioning of the financial markets…they need to be regulated more firmly for robust risk management systems,” RBI said in its financial stability report.
Though clearing houses help in reducing systemic risk posed by derivative markets, they do not make risks disappear, RBI said. They accumulate a large share of the smaller pool of counter-party risks, it added.
“Their capital, margining and collateral requirements need to be assessed from a prudential and systemic stability perspective,” the central bank said.
Clearing houses are central counter-parties (CCPs) that stand between trading partners and guarantee the trade.
—Agencies