Christina Segal-Knowles: Central clearing - three lessons and a path forward

Speech by Ms Christina Segal-Knowles, Executive Director for Financial Markets Infrastructure of the Bank of England, at the European Association of CCP Clearing Houses (EACH), Brussels, 19 May 2022. 

The views expressed in this speech are those of the speaker and not the view of the BIS.

Thank you for having me – it is a pleasure to be here with you to celebrate the 30th anniversary of EACH. I would have loved to be there in person. But I have another anniversary to celebrate here in London – my son turns 6 today – so I am multitasking!

The reality is that Central Counterparties (CCPs) have much to celebrate. A decade ago, incentivising central clearing was a key prong of post-global-financial-crisis reforms. CCPs were central to efforts to move away from the opaque network of insufficiently margined bilateral derivatives contracts that helped to turn a slump in U.S. subprime mortgages into a global financial meltdown.

Today, prompt and transparent margining and greater use of central clearing ensures that perceived stress on one major participant does not cause a panic. Greater use of CCPs and the broader reforms to derivative markets have made the financial system more resilient.

But history is full of stories of reformers who made progress, declared victory, and paused, only to find their accomplishments threatened or reversed. For the post-crisis reforms to be durable, we cannot rest on our laurels – we have to keep learning and adapting. CCPs should keep themselves central by again being part of the solution.

Over the past two years, two episodes of extreme market stress caused by external factors have tested the system: first, a once-in-100 year pandemic and second, the unprovoked invasion of Ukraine by Russia. We should use the lessons from those episodes to make central clearing stronger.