ISDA Recommends Risk Management Best Practices For Central Counterparties

ISDA recommended risk management best practices to ensure "greater consistency in risk practices at CCPs across the globe."

In the Best Practices paper, ISDA recommends, among other things, that:

• risk management be consistent with the underlying risk of a particular product (e.g., distinguishing products traded on a central order book from OTC-cleared products);
• CCPs have "robust membership requirements" (i.e., financial and operational capability) that are reviewed consistently;
• products that are cleared by a CCP be adequately "standardized and liquid";
• CCPs ensure that there is sufficient participation in the auction of a defaulting member's portfolio;
• margin be calculated across all products in a consistent manner, taking into consideration concentration, liquidity and wrong-way risk;