Market fragmentation has created considerable challenges for all market participants, not least in the area of clearing. A lot has already been written and said about the need for full interoperability between central counterparties ("CCPs") if the objectives of MiFID are to be fully realized. However, the situation remains opaque at best, with the industry still struggling to evolve a workable plan for dealing with issues such as the risk management of trading entities, effective cross margining between venues, and ultimately managing the default risk of the CCP's themselves.

EuroCCP today published a white paper outlining four key recommendations to deal with these issues.

• Each CCP should augment its own existing default fund to cover potential close-out losses in the event of an interoperating CCP's default.

• An Interoperability Convention among all interoperating CCPs should replace confidential bilateral agreements as soon as practicable.

• Commercial barriers to interoperability should be removed.

• Further consideration of inter-CCP netting,whereby a netting agent would be established to determine each CCP's net securities and cash position against the other CCPs.

The full report can be viewed here.

Watch EuroCCP's CEO, Diana Chan introduce the report in this short video presentation.