CDCC chosen to deliver central counterparty for Canadian repo market; central bank hails “critical first step”

The Investment Industry Association of Canada (IIAC) has selected the Canadian Derivatives Clearing Corporation (CDCC) to develop a central counterparty for the Canadian repo market, in a move welcomed by the country’s central bank.

Bank of Canada governor Mark Carney described the move as “a critical first step” and cited the effect of an efficient repo market in helping the country’s core markets function continuously.

“Developing a more effective central counterparty framework for repo transactions in Canada constitutes important progress, and the Bank of Canada is pleased to be working closely with industry on initiatives such as this,” he said.

Glenn Goucher, CDCC senior vice president and chief clearing officer, revealed that the SOLA clearing platform will be used to underpin the infrastructure, adding that it has “both the flexibility and the horsepower to meet this challenge”.

Supporters of the central counterparty model say that it reduces risk by creating a centralised hub for all transactions, theoretically eliminating counterparty default risk.

The subject of whether to introduce a central counterparty into repo and securities lending markets is currently the topic of fierce debate around the world.