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Topical articles Central counterparties 1 Central counterparties: what are they,

By Bank E, Bank A and Bank BBank E, Bank D, Bank D, Bank A, Bank C, Bank C and Bank B


The Government introduced major changes to the system of financial regulation in the United Kingdom in April 2013, including creating the Financial Policy Committee and transferring significant new supervisory responsibilities to the Bank. As part of this, the Bank is now responsible for the supervision of central counterparties, or CCPs. This article explains what CCPs are, setting out their importance for the financial system — including the benefits they bring and some of the risks they could present if not properly managed. It also summarises the Bank’s approach to supervising CCPs and describes some of the key priorities the Bank will be pursuing. Financial market infrastructures lie at the heart of the financial system. Some facilitate the movement of cash and securities needed to settle transactions. Others intermediate exposures between market participants, guaranteeing that financial obligations are met. In essence, these market infrastructures are sets of rules, processes and operational arrangements for managing, reducing and allocating the inherent risks arising from transactions between market participants. As such, they play a crucial role in helping the economy and financial markets to function. Figure 1 A complex ‘web ’ of bilateral exposures is reduced to a more simple network via a CC

Year: 2013
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