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Derivative margin calls: a new driver of MMF flows

Author

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  • Ghio, Maddalena
  • Rousová, Linda
  • Salakhova, Dilyara
  • Bauer, Germán Villegas

Abstract

During the March 2020 market turmoil, euro area money-market funds (MMFs) expe-rienced significant outflows, reaching almost 8% of assets under management. This paper investigates whether the volatility in MMF flows was driven by investors’ liquidity needs re-lated to derivative margin payments. We combine three highly granular unique data sources (EMIR data for derivatives, SHSS data for investor holdings of MMFs and Refinitiv Lip-per data for daily MMF flows) to construct a daily fund-level panel dataset spanning from February to April 2020. We estimate the effects of variation margin paid and received by the largest holders of EUR-denominated MMFs on flows of these MMFs. The main findings suggest that variation margin payments faced by some investors holding MMFs were an im-portant driver of the flows of EUR-denominated MMFs domiciled in euro area. JEL Classification: G13, G15, G23

Suggested Citation

  • Ghio, Maddalena & Rousová, Linda & Salakhova, Dilyara & Bauer, Germán Villegas, 2023. "Derivative margin calls: a new driver of MMF flows," Working Paper Series 2800, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20232800
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    References listed on IDEAS

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    6. Paul Glasserman & Qi Wu, 2018. "Persistence and Procyclicality in Margin Requirements," Management Science, INFORMS, vol. 64(12), pages 5705-5724, December.
    7. Capotă, Laura-Dona & Grill, Michael & Molestina Vivar, Luis & Schmitz, Niklas & Weistroffer, Christian, 2022. "Is the EU money market fund regulation fit for purpose? Lessons from the COVID-19 turmoil," Working Paper Series 2737, European Central Bank.
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    9. repec:imf:imfdps:2021/018 is not listed on IDEAS
    10. Marco Bardoscia & Ginestra Bianconi & Gerardo Ferrara, 2019. "Multiplex network analysis of the UK over‐the‐counter derivatives market," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 24(4), pages 1520-1544, October.
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    Cited by:

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    3. Zuzana Gric & Jan Janku & Simona Malovana, 2023. "What Drives Sectoral Differences in Currency Derivate Usage in a Small Open Economy? Evidence from Supervisory Data," Working Papers 2023/12, Czech National Bank.

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    More about this item

    Keywords

    big data; interconnectedness; liquidity risk; money market funds; non-bank financial intermediaries;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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