Forcing all OTC derivatives trades to be centrally cleared will result in a whole host of unintended consequences, including a potential increase in systemic risk, agreed a panel of sell side firms and vendors at a recent SunGard event in London. Clearing via central counterparties (CCPs) has been on the regulatory agenda for some time (see McCreevy’s comments at the start of last year for example, see here) and many in the industry are concerned that a regulatory knee jerk reaction to the financial crisis will mean OTC trades that are not liquid enough to be centrally cleared could be forced down the CCP route.

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