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Incentive compatible centralised clearing

Author

Listed:
  • Biais, B.
  • Heider, F.
  • Hoerova, M.

Abstract

Policy-makers around the world recognise central clearing counterparties (CCPs) as a key tool to enhance financial stability. Recent research supports the arguments for an increased role for CCPs. CCPs can insure against counterparty risk through mutualisation, enable implementation of adequate margin requirements, save on collateral through greater netting efficiency and promote ransparency in the market. The authors point out, however, that information asymmetries matter for clearing and that there may be a trade-off between ex post insurance and ex ante incentives. To be beneficial central clearing must therefore be incentive compatible. The authors discuss how risk management practices of CCPs can be designed to mitigate incentive problems. CCPs themselves must be properly governed, supervised and their competitive environment carefully monitored.

Suggested Citation

  • Biais, B. & Heider, F. & Hoerova, M., 2013. "Incentive compatible centralised clearing," Financial Stability Review, Banque de France, issue 17, pages 161-168, April.
  • Handle: RePEc:bfr:fisrev:2011:17:15
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    References listed on IDEAS

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    5. Daniel Heller & Nicholas Vause, 2012. "Collateral requirements for mandatory central clearing of over-the-counter derivatives," BIS Working Papers 373, Bank for International Settlements.
    6. Bruno Biais & Florian Heider & Marie Hoerova, 2012. "Clearing, Counterparty Risk, and Aggregate Risk," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 60(2), pages 193-222, July.
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    Cited by:

    1. Vuillemey, G. & Breton, R., 2014. "Endogenous Derivative Networks," Working papers 483, Banque de France.

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