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Access, Competition and Risk in Centrally Cleared Markets

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Author Info

  • Jean-Sébastien Fontaine
  • Héctor Pérez Saiz
  • Joshua Slive

    (Bank of Canada)

Abstract

Central counterparties can make over-the-counter markets more resilient and reduce systemic risk by mitigating and managing counterparty credit risk. These benefits are maximized when access to central counterparties is available to a wide range of market participants. In an over-the-counter market, there is an important trade-off between risk and competition. A model of an over-the-counter market shows how risk and competition could be influenced by the incentives of market participants as they move to central clearing. In a centrally cleared market, there may be less risk when participation is high. This helps to explain why regulators have put in place requirements for fair, open and risk-based access criteria.

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File URL: http://www.bankofcanada.ca/wp-content/uploads/2012/11/bod-review-autumn12-fontaine.pdf
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Bibliographic Info

Article provided by Bank of Canada in its journal Bank of Canada Review.

Volume (Year): 2012 (2012)
Issue (Month): Autumn ()
Pages: 14-22

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Handle: RePEc:bca:bcarev:v:2012:y:2012:i:autumn12:p:14-22

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Cited by:
  1. Jean-Sébastien Fontaine & Héctor Pérez Saiz & Joshua Slive, 2012. "When Lower Risk Increases Profit: Competition and Control of a Central Counterparty," Working Papers 12-35, Bank of Canada.

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