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Time for Stability in Derivatives Markets – a New Look at Central Counterparty Clearing for Securities Markets

Author

Listed:
  • Thorsten V. Koeppl

    (Queen's University)

Abstract

The recent financial crisis has driven many plans for improving the stability and resilience of the global financial system. One concept, managing the risk of default in securities or financial derivatives markets through central counterparties, receives scrutiny in this report. The author examines the role centralized clearing parties could play in improving system resilience. These centralized clearing parties are institutions that interpose themselves between counterparties in financial transactions. The author offers a new look at what these institutions could achieve in over-the-counter derivatives trading and short-term funding markets. He places the emphasis on the core services they could provide: the diversification of counterparty risk and the redistribution of default losses among its members.

Suggested Citation

  • Thorsten V. Koeppl, 2011. "Time for Stability in Derivatives Markets – a New Look at Central Counterparty Clearing for Securities Markets," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 329, May.
    • Handle: RePEc:cdh:commen:329
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    File URL: https://www.cdhowe.org/public-policy-research/time-stability-derivatives-markets-%E2%80%93-new-look-central-counterparty-clearing-securities-markets
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    References listed on IDEAS

    as
    1. Michael J. Fleming & Kenneth D. Garbade, 2004. "Repurchase agreements with negative interest rates," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 10(Apr).
    2. David Longworth, 2010. "Warding Off Financial Market Failure: How to Avoid Squeezed Margins and Bad Haircuts," C.D. Howe Institute Backgrounder, C.D. Howe Institute, issue 135, December.
    3. Thorsten Koeppl & Cyril Monnet, 2010. "The emergence and future of central counterparties," Working Papers 10-30, Federal Reserve Bank of Philadelphia.
    4. Thorsten Koeppl & Cyril Monnet, 2006. "Central Counterparties," 2006 Meeting Papers 513, Society for Economic Dynamics.
    5. Angelo Melino, 2011. "Moving Monetary Policy Forward: Why Small Steps - and a Lower Inflation Target - Make Sense for the Bank of Canada," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 319, January.
    6. Koeppl, Thorsten & Monnet, Cyril & Temzelides, Ted, 2012. "Optimal clearing arrangements for financial trades," Journal of Financial Economics, Elsevier, vol. 103(1), pages 189-203.
    7. Hull, J., 2010. "OTC derivatives and central clearing: can all transactions be cleared?," Financial Stability Review, Banque de France, issue 14, pages 71-78, July.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Financial Services; derivatives; securities markets; central counterparty clearing;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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