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Morgan Stanley: CCPs next "too big to fail"
28 September 2011
Central counterparties are intended to reduce risk in the financial system but according to Morgan Stanley they could be the next entity to be too important to let fail. Annabelle Palmer reports
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IMN
CCPs
securities lending
Despite being introduced with a view to driving down risk in the financial system, central counterparties (CCPs) could pose a systemic risk, and instead result in the creation of another group of institutions that could be "too big to fail", according to Andrew Ross, the European head of OTC clearing at Morgan Stanley.Currently there is no explicit programme for CCPs in securities lending as there is for over-the-counter (OTC) derivatives but discussion at IMN’s securities lending conference in London yesterday focussed on the potential impact of any such development. CCPs are considered to mitigate counterparty risk in securities lending transactions by collecting margin from the lender and the borrower, thereby protecting the CCP if the borrower fails to return the securities or the lender fails...
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