WFEClear 2024: the WFE convenes clearing industry at BME in Madrid - Attendance hits record high

 

CONFERENCE RECAP

WFEClear 2024: the WFE convenes clearing industry at BME in Madrid - Attendance hits record high

London, 22 March 2024 – This week the World Federation of Exchanges (the WFE), the global industry group for exchanges and Central Clearing Counterparties (CCPs), convened a record number of stakeholders at its annual clearing conference, WFEClear. Industry leaders from central clearing houses, exchanges, regulators and policymakers met at the SIX-BME headquarters, the Palacio de la Bolsa de Madrid, to share original research and exchange ideas on the opportunities and challenges for the future of central and bilateral clearing. 

Day one consisted of a capacity building day, with a number of workshops on fundamental aspects of clearing. The technical assistance programme provides a foundational education for anyone interested in CCPs and the concepts of clearing and is taught by leading practitioners in the industry. 

The following two days of the conference featured academic paper presentations, panels, fireside chats and keynote speeches on issues such as the benefits, risks, and implications of the integration of CCPs, their role in the smooth functioning of financial markets and the legislative environments in which they operate. A selection of academic papers chosen by a Scientific Committee, comprising academics, regulators and industry experts, was presented and discussed. The papers covered relevant industry issues such as procyclicality measurement, the role that DLT technology can play in the future of the industry or the increase in liquidity that can be generated by shortening the settlement cycle. 

Key highlights from Day 1 include:

-    BME CEO, Javier Hernani, analysed current sector trends and focused his opening remarks on the crucial role of clearing in financial markets. "As an industry, we face profound challenges, but Central Counterparties have made the world a safer place, as demonstrated in the 2008 crisis or, more recently, in the pandemic," he said. He also highlighted SIX's commitment to being a leader in digital assets as, "regulated markets offer a higher level of security and trust". Hernani noted that the revision of the European Market Infrastructure Regulation (EMIR) will require financial institutions to open active accounts in Central Counterparty Clearing Houses in the EU, which is an opportunity for SIX as it is licensed in the European Union for IRS, through its Spanish clearing house.

-    Froukelien Wendt, Director for CCPs, Independent Member of the CCP Supervisory Committee, European Securities and Markets Authority (ESMA) delivered a keynote address outlining the preconditions of setting up a CCP. The panel which followed discussed how a CCP should be set up to align the incentives of market participants and provide knock on benefits to the wider financial system such as multi-lateral netting. 

-    CFTC Commissioner Summer Mersinger gave a keynote address in which she expressed hope that the Basel III Endgame proposal changes expected this year avoid “imposing a government-mandated solution that is contrary to the interests of those in the derivatives markets that will bear its consequences.” Commissioner Mersinger highlighted that whilst bank capital requirements are critical to our collective efforts to prevent another financial crisis, addressing capital requirements should not undercut the important role central clearing plays in reducing systemic risk. 

Key highlights from Day 2 include:

-    Dr Dermot Turing, Visiting Fellow, Kellogg College, Oxford said in his keynote speech, “A futile battle is still going on between the EU and the UK about where euro-denominated financial products should be cleared. The fight is not about the interests of the industry or consumers, and none of the reasons given by the authorities makes a great deal of sense. There are far more important things to worry about in the post-trade space, including the availability of collateral, who picks up the tab when things go wrong, and the shrinking pool of clearing members.”

-    The pioneering paper on procyclicality co-authored by the WFE’s Head of Research, Pedro Gurrola Perez was presented. The paper puts forward an impulse response function (IRF) approach to measuring initial margin responsiveness. This method allows the comparison of CCP models at different levels of volatility, with independence of particular scenarios, and with a forward-looking perspective, avoiding the limitations that affect other measures, including the one proposed by BCBS-CPMI-IOSCO joint working group on margin (JWGM).

-    There were two panels related to the BCBS-CPMI-IOSCO JWGM consultation on initial margin responsiveness and transparency. One of these looked at the transparency aspect of the JWGM consultation and how CCPs communicate margin calls to their customers. Speakers gave examples of the efforts they’ve engaged in to improve the predictability and transparency of margins including standardised public quantitative and qualitative disclosures.

-    Aniket Bhanu, Vice President, NSE Clearing, National Stock Exchange of India talked through his academic paper on India’s implementation of the T+1 settlement cycle and the lessons learnt which may be useful for other markets. Mr Bhanu noted that shortened settlement cycles also lower the funding liquidity demand with lower margin requirements, which could unlock liquidity in less liquid stocks.

-    Carol Alexander, Professor of Finance at the University of Sussex, delivered a keynote on the importance of independent CCPs for unregulated crypto platforms that use their own system of automatic liquidations of clients’ losing positions, passing them onto their insurance fund which may trade in a strongly pro-cyclical manner. Professor Alexander said that clients are faced with real-time management of rapidly changing collateral requirements, based on poorly constructed MtM prices, which can make their entire portfolio bankrupt, without notice from the platform. Professor Alexander also highlighted that the deliberate under-reporting of liquidations, and the removal of insurance fund trades from historical data, combine to give a false picture of the actual risks of trading. A deep dive into the client liquidations and insurance fund trades around the API outage on Binance on 19 May 2021 was used as an example.

Key takeaways from Day 3 include:

-    One panel discussed the impacts of Basel III proposals, which would increase the capital requirements for large US banks, consolidate the market for intermediaries and therefore reduce access to clearing for end users. The panellists suggested the proposals could counteract the G20 clearing mandate and decrease the use of central clearing because of higher costs that may be passed on to end-users (who may be forced to limit their activity or leave the market) or because of reduced capacity offered by the remaining clearing members in the market.

-    Another panel looked at the learnings from the ION Group hacking in 2023. The panellists discussed best practices for CCPs as they migrate to more cloud-based services and technology, including putting in place third party risk management procedures and having greater dialogue with customers. The panel also discussed why concerns about cloud service providers are overdone.

-    The WFE announced the host and dates for WFEClear 2025: Korea Exchange (KRX) in Seoul, 1st-3rd April 2025.

Nandini Sukumar, CEO of the World Federation of Exchanges said, “WFEClear is a unique meeting where we bring together our CCP members with the leading academic researchers in the space as part of our commitment to improving the understanding of the market infrastructure industry. We look forward to continuing our work in growing the pool of high quality research, generating ideas and innovation and adding to the sum total of knowledge about clearing and CCPs.” 

Javier Hernani, Head of Securities Services at SIX said, “It has been a pleasure to host the 40th edition of WFEClear in Madrid. We have enjoyed three days of interesting panels, debates and talks with market infrastructure professionals and academics from all over the world. Perhaps the biggest takeaway from these discussions is that clearing and CCPs play a crucial role in the safety, stability and governance of financial markets. We face challenges and opportunities for change, with digitalization and regulation at the centre, and I am convinced that we will be able as an industry to keep CCPs as the main guarantors of financial market stability”.

You can see the full programme of the event here. Many speakers have authored articles for the next edition of The WFE’s Focus Magazine.

The views of the panellists expressed are those of the speakers and do not necessarily reflect the views or positions of any entities they represent.

For more information, please contact:

Cally Billimore        

Manager, Communications

+44 77 2286 0055

[email protected]

        

 

About the World Federation of Exchanges (WFE):

Established in 1961, the WFE is the global industry association for exchanges and clearing houses. Headquartered in London, it represents over 250 market infrastructure providers, including standalone CCPs that are not part of exchange groups. Of our members, 34% are in Asia-Pacific, 45% in EMEA and 21% in the Americas. WFE’s 90 member CCPs and clearing services collectively ensure that risk takers post some $1.3 trillion (equivalent) of resources to back their positions, in the form of initial margin and default fund requirements. WFE exchanges, together with other exchanges feeding into our database, are home to over 50,000 listed companies, and the market capitalisation of these entities is over $100 trillion; around $140 trillion (EOB) in trading annually passes through WFE members (at end 2022).

The WFE is the definitive source for exchange-traded statistics and publishes over 350 market data indicators. Its free statistics database stretches back more than 40 years and provides information and insight into developments on global exchanges. The WFE works with standard-setters, policy makers, regulators and government organisations around the world to support and promote the development of fair, transparent, stable and efficient markets. The WFE shares regulatory authorities’ goals of ensuring the safety and soundness of the global financial system.

With extensive experience of developing and enforcing high standards of conduct, the WFE and its members support an orderly, secure, fair and transparent environment for investors; for companies that raise capital; and for all who deal with financial risk. We seek outcomes that maximise the common good, consumer confidence and economic growth. And we engage with policy makers and regulators in an open, collaborative way, reflecting the central, public role that exchanges and CCPs play in a globally integrated financial system.

Website: www.world-exchanges.org

Twitter: @TheWFE

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