Is there a role for exchange clearinghouses in the over-the-counter (OTC) derivatives markets?
I think that if OTC contracts are eventually cleared, they will be cleared by clearinghouses for the existing exchanges. The cross margining of exchange and OTC positions would generate significant cost savings that a stand-alone OTC clearinghouse could not match. However, at this time, many OTC market participants do not see a business case for a clearinghouse, even if it would result in cross margining with exchange-traded contracts. A continuation of the spectacular growth of the OTC markets could eventually change the cost-benefit calculus and create a critical mass of support for exchange clearinghouses to extend their services to the OTC market, but that remains to be seen. Patrick Parkinson is associate director of the Division of Research and Statistics of the Board of Governors of the Federal Reserve System. His responsibilities include analysis of public policy issues relating to futures and options markets, including their clearing arrangements. Note: The views expressed by
