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From Precy Dumlao, Opalesque Asia:

Central clearing of over-the-counter (OTC) derivatives can provide significant benefits to the stability of the financial system, according to the latest study from the International Swaps and Derivatives Association authored by Craig Pirrong, Professor of Finance at the Bauer College of Business at the University of Houston.

The paper, which is entitled "The Economics of Central Clearing: Theory and Practice" , showed that the current statistics indicate that approximately 50% of the interest rate swaps volume outstanding has been cleared, and over $17tln of credit default swaps has been cleared.

Since the 2007 global financial crisis, regulators across the world have been drafting new rules particularly in the clearing of certain OTC derivatives through central counterparties or CCPs. These new rules have significantly changed market structures and trading practices.

One of the major risks these CCPs wanted to address is the counterparty credit risk. CCPs intermediate between OTC derivatives counterparties face substantial counterparty risk. But this can be mitigated with TCCPs demand collateral (or 'margin') from their counterparties, through the netting of positions, and through other forms of credit enhancement.

"Due to the size and importance of the risks that the......................

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