It comes as no surprise to Euromoney that CME Clearing, part of CME Group has revealed that it is accepting offshore Chinese Renminbi as collateral for futures trading:
..... it will include offshore Chinese Renminbi (CNH) in the range of instruments to meet performance bond requirements on all exchange futures products cleared through CME Clearing, effective January 2012.
The company also announced with HSBC Global Banking and Markets that HSBC Hong Kong will serve as CME's first Far East clearing custodian in Asia.
CME Clearing and HSBC have built the operational framework enabling HSBC Hong Kong to hold CNH deposits from CME Group clients and to use those deposits as collateral.
This is the latest in a line of clearing houses that are looking to broaden the collateral it will accept in order for more parties to clear through them.
Our overriding principle is to make markets safer. Whilst we hope to gain business over the next few years, this is not a race to the bottom and we will not compromise our risk management. When considering the types of assets we would accept as initial margin collateral, we look at those that, in the event of a default, we could sell into the market at sensible price. We want to deliver more flexibility and choice to clients, whilst maintaining high standards of risk management.
Clearing houses will be facing fierce competition after impending US and European regulatory requirements will force market participants to clear OTC derivatives through central counterparty clearing (CCP).
The amount of capital a CCP would need under new regulations is definitely the ongoing concern, as this also includes levels set on minimum operating costs for a minimum period for orderly wind downs in the event of a CCP failing to attract customers and therefore needing to make an exit. There is a provision that European Securities and Markets Authority (ESMA) and European Market Infrastructure Regulation (EMIR) are working in the context of a default waterfall.