A CCP Risk Committee is an internal governance body within a Central Counterparty (CCP) that holds responsibility for overseeing and managing the comprehensive risk framework of the clearing house. This includes credit risk, liquidity risk, operational risk, and legal risk associated with cleared transactions. Its purpose, especially pertinent in nascent crypto derivatives markets, is to safeguard the CCP’s financial integrity and ensure its ability to perform its guarantee function across all market conditions.
Mechanism
The committee operates by reviewing risk models, stress testing results, default management procedures, and the adequacy of initial margin and default fund contributions. It evaluates new products or market changes, such as the introduction of crypto institutional options, for their risk implications and approves appropriate risk parameters. This oversight ensures that the CCP’s risk controls remain robust and adapt to evolving market dynamics and participant behaviors.
Methodology
The operational approach of a CCP Risk Committee involves regular meetings, data analysis, and expert consultations to maintain continuous vigilance over the clearing house’s risk profile. It applies a structured framework for identifying, measuring, monitoring, and controlling risks, often drawing on quantitative impact studies and industry best practices. This methodology aims to uphold market stability by ensuring that the CCP possesses sufficient resources and procedures to withstand significant market disruptions or participant defaults.
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