IDEAS home Printed from https://ideas.repec.org/a/anr/refeco/v13y2021p153-178.html
   My bibliography  Save this article

The Economics of Central Clearing

Author

Listed:
  • Albert J. Menkveld

    (Finance Department, Vrije Universiteit Amsterdam, 1081 HV Amsterdam, The Netherlands)

  • Guillaume Vuillemey

    (Finance Department, HEC Paris, 78350 Jouy-en-Josas, France)

Abstract

Central clearing counterparties (CCPs) have a variety of economic rationales. The Great Recession of 2007-2009 led regulators to mandate CCPs for most interest-rate and credit derivatives, markets in which large amounts of risks are transferred across agents. This change led to a large increase in CCP studies, which along with classical studies are surveyed in this article. For example, multilateral netting, the insurance against counterparty risk, the effect of CCPs on asset prices and fire sales, margins setting, the default waterfall, and CCP governance are discussed here. We review both CCP theory and empirical work and conclude by discussing regulatory issues.

Suggested Citation

  • Albert J. Menkveld & Guillaume Vuillemey, 2021. "The Economics of Central Clearing," Annual Review of Financial Economics, Annual Reviews, vol. 13(1), pages 153-178, November.
  • Handle: RePEc:anr:refeco:v:13:y:2021:p:153-178
    DOI: 10.1146/annurev-financial-100520-100321
    as

    Download full text from publisher

    File URL: https://doi.org/10.1146/annurev-financial-100520-100321
    Download Restriction: Full text downloads are only available to subscribers. Visit the abstract page for more information.

    File URL: https://libkey.io/10.1146/annurev-financial-100520-100321?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Khetan, Umang & Neamțu, Ioana & Sen, Ishita, 2023. "The market for sharing interest rate risk: quantities behind prices," Bank of England working papers 1031, Bank of England.
    2. Vuillemey, Guillaume, 2023. "Mitigating fire sales with a central clearing counterparty," Journal of Financial Intermediation, Elsevier, vol. 55(C).
    3. Melinda Friesz & Kira Muratov-Szabó & Andrea Prepuk & Kata Váradi, 2021. "Risk Mutualization in Central Clearing: An Answer to the Cross-Guarantee Phenomenon from the Financial Stability Viewpoint," Risks, MDPI, vol. 9(8), pages 1-19, August.
    4. González-Urteaga, Ana & Rubio, Gonzalo, 2022. "Guarantee requirements by European central counterparties and international volatility spillovers," Research in International Business and Finance, Elsevier, vol. 62(C).
    5. Inaki Aldasoro & Luitgard A M Veraart, 2022. "Systemic Risk in Markets with Multiple Central Counterparties," BIS Working Papers 1052, Bank for International Settlements.
    6. Dorinel Bastide & St'ephane Cr'epey & Samuel Drapeau & Mekonnen Tadese, 2023. "Resolving a Clearing Member's Default, A Radner Equilibrium Approach," Papers 2310.02608, arXiv.org.
    7. Bardoscia, Marco & Caccioli, Fabio & Gao, Haotian, 2022. "Efficiency of central clearing under liquidity stress," Bank of England working papers 1002, Bank of England.
    8. Daisuke Miyakawa & Takemasa Oda & Taihei Sone, 2023. "Regulatory Reforms and Price Heterogeneity in an OTC Derivative Market," Bank of Japan Working Paper Series 23-E-12, Bank of Japan.
    9. Christine Parlour, 2023. "An Introduction to Web3 with Implications for Financial Services," Policy Hub, Federal Reserve Bank of Atlanta, vol. 2023(3), May.
    10. Grothe, Magdalena & Pancost, N. Aaron & Tompaidis, Stathis, 2023. "Collateral competition: Evidence from central counterparties," Journal of Financial Economics, Elsevier, vol. 149(3), pages 536-556.
    11. Stéphane Crépey, 2022. "Positive XVAs," Post-Print hal-03910135, HAL.
    12. Ron Berndsen, 2021. "Fundamental questions on central counterparties: A review of the literature," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(12), pages 2009-2022, December.
    13. Christian Kubitza & Loriana Pelizzon & Mila Getmansky Sherman, 2021. "Loss Sharing in Central Clearinghouses: Winners and Losers," ECONtribute Discussion Papers Series 066, University of Bonn and University of Cologne, Germany.

    More about this item

    Keywords

    central clearing; counterparty risk; margin; default waterfall;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:anr:refeco:v:13:y:2021:p:153-178. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: http://www.annualreviews.org (email available below). General contact details of provider: http://www.annualreviews.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.