Much has been written about the risks posed by CCPs, particularly in in a catastrophic scenario. Little has been done to evaluate the comparative risk of different venues, until the recent introduction by Moody's of a new methodology for evaluating CCP risk. A much needed tool, and brilliant business move on their part.
Moody’s has proposed a new global methodology that will allow clearing members and end-users to assess and compare the soundness of central counterparty clearing house risk management practices. The ability to compare risk management practices across CCPs is becoming crucial for market participants following new regulations that force standardised over-the-counter derivatives to clear through central counterparties. As debate continues over whether standardised stress tests would be beneficial for assessing CCP risk, the new ratings could provide an important means of comparison.