First, as independent clearing agents, CCPs are well positioned to offer effective protection against counterparty risk through the application of consistent margin requirements to a wide range of counterparties and through  10  See T.V. Dang, G. Gorton, and B. Holmström, “Financial Crises and the Optimality of Debt for Liquidity Provision,” working paper, November 2009. 11  Speech by Benoît Cœuré, at the joint ECB-MNB conference on “Cost and efficiency of retail payments: Evidence, policy actions and role of central banks”, Budapest, 15 November 2012. https://www.ecb.int/press/key/date/2012/html/sp121115_2.en.html. 4  BIS central bankers’ speeches  multilateral netting and risk sharing. Second, CCPs also provide enhanced transparency for the markets they serve, which in turn facilitates appropriate risk management and may also help to reduce excessive leverage. Third, as a result of multilateral netting, CCPs may also free up collateral. 12 Overall, provided that it is well-managed and in line with applicable regulatory and oversight requirements, a CCP can be expected to guarantee trade execution under a wide range of market conditions, including extreme or exceptional scenarios. This supports trading also at times of distress when uncertainty and risk aversion may disrupt activity and exacerbate volatility in markets. Given the benefits of central clearing for market resilience and financial stability more broadly, the ECB welcomes the overall increase in the share of transactions that are cleared through CCPs. It also supports the execution of repo transactions via CCPs.

See G. Afonso, A. Kovner, and A. Schoar, “Stressed, Not Frozen: The Federal Funds Market in the Financial Crisis”, Journal of Finance, Vol. 66, No 4, 2011. 6  See International Capital Market Association, “European Repo Market Survey”, No 23, June 2012, available at http://www.icmagroup.org/assets/documents/Market-Info/Repo-Market-Surveys/ICMA-ERC-European-RepoSurvey-June-2012.pdf. 2  BIS central bankers’ speeches  December 2012 with 172 banks participating shows a similar development. 7 The Money Market Study also compares the development of the secured with the unsecured market. And indeed, while the unsecured money market has steadily contracted since 2007, the secured money market has held its ground over the same period. Another, more recent and troubling development in the functioning of the money markets is the on-going investigations into manipulations of key money market reference rates. The ECB is closely following this development and is supporting the attempts to reform reference rates, given the role they play in the transmission of monetary policy. In our response to the European Commission’s public consultation, while stressing that reference rates should remain private market initiatives, we have called for short-term governance reforms to restore and uphold the credibility of these reference rates, associated with longer-term measures involving changes in the calculation methodology. In the short term, governance reforms and increased supervisory and regulatory scrutiny can help to restore the market’s confidence in the integrity of the benchmarks and to ensure their continuous viability.