IDEAS home Printed from https://ideas.repec.org/a/eee/finmar/v64y2023ics1386418123000174.html
   My bibliography  Save this article

On the choice of central counterparties in the EU

Author

Listed:
  • Demange, Gabrielle
  • Piquard, Thibaut

Abstract

We study competition between European Union’s Central CounterParties (CCPs) on the credit default swap (CDS) market. Using data on market shares, we show that CCPs have a monopoly for single-name CDSs and compete on indices along various dimensions. Using transactions data, we focus on the major dealers who alternatively clear their transactions on the two main CCPs. Estimating their choice of CCP reveals that fees, CCPs’ robustness and activity, dealers’ risk, and market volatility are significant. Dealers’ positions indicate that saving on collateral costs is secondary relative to the benefits of dual membership and quality.

Suggested Citation

  • Demange, Gabrielle & Piquard, Thibaut, 2023. "On the choice of central counterparties in the EU," Journal of Financial Markets, Elsevier, vol. 64(C).
    • Handle: RePEc:eee:finmar:v:64:y:2023:i:c:s1386418123000174
    DOI: 10.1016/j.finmar.2023.100819
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1386418123000174
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.finmar.2023.100819?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 look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Elliott, David, 2013. "Financial Stability Paper No 20: Central counterparty loss-allocation rules," Bank of England Financial Stability Papers 20, Bank of England.
    2. Paul Glasserman & Ciamac C. Moallemi & Kai Yuan, 2015. "Hidden Illiquidity with Multiple Central Counterparties," Working Papers 15-07, Office of Financial Research, US Department of the Treasury.
    3. Arnold, M., 2017. "The impact of central clearing on banks’ lending discipline," Journal of Financial Markets, Elsevier, vol. 36(C), pages 91-114.
    4. Duffie, Darrell & Scheicher, Martin & Vuillemey, Guillaume, 2015. "Central clearing and collateral demand," Journal of Financial Economics, Elsevier, vol. 116(2), pages 237-256.
    5. Ronald W.Anderson & Karin Jõeveer, 2014. "The Economics of Collateral," FMG Discussion Papers dp732, Financial Markets Group.
    6. Bruno Biais & Florian Heider & Marie Hoerova, 2016. "Risk-Sharing or Risk-Taking? Counterparty Risk, Incentives, and Margins," Journal of Finance, American Finance Association, vol. 71(4), pages 1669-1698, August.
    7. Cucic, Dominic, 2022. "Central clearing and loss allocation rules," Journal of Financial Markets, Elsevier, vol. 59(PA).
    8. Evangelos Benos & Wenqian Huang & Albert Menkveld & Michalis Vasios, 2024. "The Cost of Clearing Fragmentation," Management Science, INFORMS, vol. 70(6), pages 3581-3596, June.
    9. Bellia, Mario & Girardi, Giulio & Panzica, Roberto & Pelizzon, Loriana & Peltonen, Tuomas, 2024. "The demand for central clearing: To clear or not to clear, that is the question!," Journal of Financial Stability, Elsevier, vol. 72(C).
    10. Abad, Jorge & Aldasoro, Iñaki & Aymanns, Christoph & D'Errico, Marco & Hoffmann, Peter & Langfield, Sam & Neychev, Martin & Roukny, Tarik & Rousová, Linda, 2016. "Shedding light on dark markets: First insights from the new EU-wide OTC derivatives dataset," ESRB Occasional Paper Series 11, European Systemic Risk Board.
    11. Yang-Ho Park & Nicole Abruzzo, 2016. "An Empirical Analysis of Futures Margin Changes: Determinants and Policy Implications," Journal of Financial Services Research, Springer;Western Finance Association, vol. 49(1), pages 65-100, February.
    12. Ghamami, Samim & Glasserman, Paul, 2017. "Does OTC derivatives reform incentivize central clearing?," Journal of Financial Intermediation, Elsevier, vol. 32(C), pages 76-87.
    13. Capponi, Agostino & Cheng, Wan-Schwin Allen & Giglio, Stefano & Haynes, Richard, 2022. "The collateral rule: Evidence from the credit default swap market," Journal of Monetary Economics, Elsevier, vol. 126(C), pages 58-86.
    14. Darrell Duffie & Haoxiang Zhu, 2011. "Does a Central Clearing Counterparty Reduce Counterparty Risk?," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 1(1), pages 74-95.
    15. Mark Paddrik & H. Peyton Young, 2021. "Assessing the Safety of Central Counterparties," Working Papers 21-02, Office of Financial Research, US Department of the Treasury.
    16. Guillaume Vuillemey, 2020. "The Value of Central Clearing," Journal of Finance, American Finance Association, vol. 75(4), pages 2021-2053, August.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Gabrielle Demange & Thibaut Piquard, 2021. "On the market structure of central counterparties in the EU," Working Papers halshs-03107812, HAL.
    2. 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).
    3. Christian Kubitza & Loriana Pelizzon & Mila Getmansky Sherman, 2024. "Loss Sharing in Central Clearinghouses: Winners and Losers," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 14(2), pages 237-273.
    4. Kubitza, Christian & Pelizzon, Loriana & Getmansky, Mila, 2018. "The pitfalls of central clearing in the presence of systematic risk," ICIR Working Paper Series 31/18, Goethe University Frankfurt, International Center for Insurance Regulation (ICIR).
    5. Fiedor, Paweł, 2018. "Clearinghouse-Five: determinants of voluntary clearing in European derivatives markets," ESRB Working Paper Series 72, European Systemic Risk Board.
    6. Cenedese, Gino & Ranaldo, Angelo & Vasios, Michalis, 2020. "OTC premia," Journal of Financial Economics, Elsevier, vol. 136(1), pages 86-105.
    7. Vuillemey, Guillaume, 2023. "Mitigating fire sales with a central clearing counterparty," Journal of Financial Intermediation, Elsevier, vol. 55(C).
    8. Corradin, Stefano & Heider, Florian & Hoerova, Marie, 2017. "On collateral: implications for financial stability and monetary policy," Working Paper Series 2107, European Central Bank.
    9. Bellia, Mario & Girardi, Giulio & Panzica, Roberto & Pelizzon, Loriana & Peltonen, Tuomas, 2024. "The demand for central clearing: To clear or not to clear, that is the question!," Journal of Financial Stability, Elsevier, vol. 72(C).
    10. Bardoscia, Marco & Caccioli, Fabio & Gao, Haotian, 2022. "Efficiency of central clearing under liquidity stress," Bank of England working papers 1002, Bank of England.
    11. Cucic, Dominic, 2022. "Central clearing and loss allocation rules," Journal of Financial Markets, Elsevier, vol. 59(PA).
    12. Ghamami, Samim & Glasserman, Paul, 2017. "Does OTC derivatives reform incentivize central clearing?," Journal of Financial Intermediation, Elsevier, vol. 32(C), pages 76-87.
    13. 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.
    14. Jessie Jiaxu Wang & Agostino Capponi & Hongzhong Zhang, 2022. "A Theory of Collateral Requirements for Central Counterparties," Management Science, INFORMS, vol. 68(9), pages 6993-7017, September.
    15. Berndsen, Ron, 2020. "Five Fundamental Questions on Central Counterparties," Other publications TiSEM 1f3bd844-92ab-4104-8f57-9, Tilburg University, School of Economics and Management.
    16. Boissel, Charles & Derrien, François & Ors, Evren & Thesmar, David, 2017. "Systemic risk in clearing houses: Evidence from the European repo market," Journal of Financial Economics, Elsevier, vol. 125(3), pages 511-536.
    17. Czech, Robert, 2021. "Credit default swaps and corporate bond trading," Journal of Financial Intermediation, Elsevier, vol. 48(C).
    18. Jin-Wook Chang, 2019. "Collateralized Debt Networks with Lender Default," Finance and Economics Discussion Series 2019-083, Board of Governors of the Federal Reserve System (U.S.).
    19. 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.
    20. Fontana, Silvia Dalla & Holz auf der Heide, Marco & Pelizzon, Loriana & Scheicher, Martin, 2019. "The anatomy of the euro area interest rate swap market," SAFE Working Paper Series 255, Leibniz Institute for Financial Research SAFE.

    More about this item

    Keywords

    Central counter-party; Central clearing; Dealers; Collateral;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

    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:eee:finmar:v:64:y:2023:i:c:s1386418123000174. 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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/finmar .

    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.