Webinar "Central Clearing Parties, Robinhood and Archegos" - Prof. Tanega, Mr. Savi
Published: 20 April 2021
We will welcome Prof. Tanega and Mr. Savi at our next webinar on “Central Clearing Parties Regulations, A Theoretical Framework - With Case Examples of Robinhood and Archegos” on Friday 7th May, 2-3.30 PM BST.
We are pleased to announce our next webinar, taking place on Friday, 7th May, 2-3.30 PM BST. Our guest speakers, Prof. Joe Tanega and Mr. Andrea Savi, will discuss on “Central Clearing Parties Regulations, A Theoretical Framework - With Case Examples of Robinhood and Archegos”.
Their presentation will draw from a very insightful paper, proposing an innovative regulatory paradigm for Over-The-Counter derivatives. The analysis will be tied to the recent Robinhood and Archegos cases.
Prof. Joe Tanega is a Professor of Law and Finance at the Diplomatic Academy of the Vrije Universiteit Brussel and the CEO and President of the Global Center for Law and Finance. He is also a Professor at the Alma Graduate School of Bologna, at the Grenoble Ecole de Management and at the King Abdulaziz University of Jeddah.
Mr. Andrea Savi is a Legal Advisor at Lyxor Asset Management UK LLP and a MBA candidate at the Imperial College Business School.
Abstract:
In the aftermath of the global financial crisis, regulatory reforms moved OTC derivatives towards central clearing in order to reduce the systemic risk in the financial markets and avoid a domino effect as in the case of Lehman Brothers’ bankruptcy. A Central Clearing Counterparty (“CCP”) is an entity established for the purpose of mitigating counterparty credit risk and increasing the transparency in the financial markets. By interposing itself among the contractual parties, the CCP assumes all their rights and duties and may realise the novation of their original agreements.
In our analysis, the CCP’s role as guarantor of the counterparties’ obligations, could lead to adverse selection in terms of risk-pricing of the cleared products, and exacerbate the margin calls in volatile times. While in a bilateral clearing market the participants are sensitive to the credit quality of their exposure, in a central clearing market the CCPs, acting as a price-vector, could influence the behaviour of contractual parties and underestimate their real exposure.
We propose a different paradigm for academics and OTC-users: (1) a standardised regulation ossifies the financial system preventing the experimentation of new solutions and incrementing the fragility of the entire regulatory system against a high-impact event (so called “black swan”); (2) from an epistemological perspective, the asymmetric information between CCPs and clearing members creates a pro-cyclical effect on the financial markets. The recent Robinhood and Archegos’ sagas are clear examples of how clearing members and brokers are encouraged to take higher levels of leverage in times of low volatility and to deleverage their positions during intense volatility to meet their margin calls; (3) subsidizing and mutualising default losses meet the limits of the game theory, encouraging clearing members to additional risks and sub-optimal strategies. We intend to use these epistemological limits to debate the mandate of clearing OTC transactions via central counterparties and, meanwhile, to advocate a transparent model of market clearing based on bilateral mechanisms.
The presentation will be followed by a Q&A session with the audience.
Joining details are provided below. Registration is not required.
Topic: CFL Webinar - Prof. Tanega, Mr. Savi
Time: May 7, 2021 02:00 PM London
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The recordings of the webinar will be made available through our usual social media channels shortly after the event.
First published: 20 April 2021