Central Counterparty Links and Clearing System Exposures
AbstractLinks between central counterparties (CCPs) enable participants to clear positions in any linked CCP without needing to maintain multiple CCP memberships. While links enable exposure to be reduced by allowing netting across CCPs, CCPs become exposed to one another through the possibility of a CCP default. The change in system exposure resulting from these two effects has recently been of great interest to policymakers, and we assess this quantitatively using a straightforward extension of Duffie and Zhu (2011). Our model shows that CCP links can reduce overall system exposure in most plausible scenarios. This conclusion is robust to changes in assumptions about the nature of participants and their exposures, as well as to the existence of more than two linked CCPs.
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Bibliographic InfoPaper provided by Reserve Bank of Australia in its series RBA Research Discussion Papers with number rdp2013-12.
Date of creation: Oct 2013
Date of revision:
Find related papers by JEL classification:
- E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
- G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
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- Craig Pirrong, 2012. "Clearing and Collateral Mandates: A New Liquidity Trap?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 24(1), pages 67-73, 03.
- Jürg Mägerle & Thomas Nellen, 2011. "Interoperability between central counterparties," Working Papers 2011-12, Swiss National Bank.
- Stacey Anderson & Jean-Philippe Dion & Héctor Pérez Saiz, 2013. "To Link or Not To Link? Netting and Exposures Between Central Counterparties," Working Papers 13-6, Bank of Canada.
- Nicholas Garvin, 2012. "Central Counterparty Interoperability," RBA Bulletin, Reserve Bank of Australia, pages 59-68, June.
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