Clients accessing a central counterparty (CCP) via a client clearing service provider (CCSP) for over-the-counter (OTC) and exchange-traded derivatives should consider what may happen to their positions and collateral in a scenario in which the CCSP defaults.

While regulatory regimes provide for various porting mechanisms to transfer client positions to another CCSP, successful porting – of both positions and collateral – can never be guaranteed. Clients should therefore be aware of how the choice of their clearing arrangements will affect the likelihood of successful porting. Clients should also monitor the creditworthiness of their CCSP so they can proactively alter their clearing arrangements ahead of a CCSP default. This would reduce their reliance on porting mechanisms.

Clients should not rely on porting and should be mindful of what may happen if their CCSP defaults – however unlikely this might be. The successful porting of clients after the default of a CCSP can be highly uncertain and largely depends on the clients’ access to the CCP, the provisions that have been made and the local legal framework.

If required, porting can be a challenging process. If the porting of client positions is not completed within the short time window set by the CCP (defined in a matter of days or even hours), the CCP will trigger default management procedures for client positions, meaning there is a risk that clients waiting for positions to be ported might get closed out.

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