The Bank of Canada recently released a report, Financial System Review, intended to identify and consider potential risks to the Canadian financial system and promote public discussion regarding such risks. Of particular interest, the report considers the challenges of achieving fair and open access to central counterparty services in countries like Canada, which lack important global CCPs. While large Canadian dealers may access global CCPs, the criteria for direct membership in existing CCPs may exclude mid-tier institutions and fee structures may also put larger Canadian CCP members at a competitive disadvantage.
The report thus identifies two main elements designed to mitigate restricted access to global CCPs. First, the Bank of Canada suggests that access criteria and risk-management controls at CCPs could be designed to be proportional to the risk profile of the clearing performed by each CCP member. According to the report, this could "expand access to central clearing, deepen the risk-absorbing capabilities of CCPs, increase the liquidity and efficiency of OTC derivatives markets, and reduce the impact of the failure of a large global dealer." Second, the report suggests the development of a Canadian CCP, which would be better able to adapt risk-management practices to the Canadian market. In order to improve cost-efficiencies, a Canadian CCP could enter into linking arrangements local CCPs in other jurisdictions.