ESRB has published a report to the Commission on the systemic risk implications of central counterparty (CCP) interoperability arrangements under the European Market Infrastructure Regulation (EMIR). The report outlines the fundamental mechanics of central clearing and provides a description of the taxonomy of cross-CCP arrangements. ESRB identifies two ways in which CCP interoperability arrangements can have implications for financial stability, namely that:

  • they can help contain systemic risks in a situation where a number of different CCPs clear the same financial instruments; and
  • they can also have systemic risk implications as the establishment of interoperable links introduces a significant element of complexity into the overall risk management system and adds a channel for direct contagion between two or more CCPs.

(Source: ESRB Reports on EMIR CCP Arrangements Risk Implications)