Since the financial crisis much thought has gone into how the administration and risk management of OTC derivatives could be improved. Most of the discourse gives the impression that there are only two choices – either the current arrangement, with administration carried out bilaterally between the trading parties or clearing through a multilateral netting central counterparty.
But are the choices really that stark? Are there not additional solutions which would go a long way towards meeting the regulators ultimate objectives but also allow a wider range of OTC contracts to be included?
A centrally administered bilateral clearing arrangement could be such a solution.