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Derivatives clearing and settlement: a comparison of central counterparties and alternative structures

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  • Robert R. Bliss
  • Robert Steigerwald

Abstract

Most exchange-traded and some over-the-counter (OTC) derivatives are cleared and settled through clearinghouses that function as central counterparties (CCPs). Most OTC derivatives are settled bilaterally. This article discusses how these alternative mechanisms affect the functioning of derivatives markets and describes some of the advantages and disadvantages of each.

Suggested Citation

  • Robert R. Bliss & Robert Steigerwald, 2006. "Derivatives clearing and settlement: a comparison of central counterparties and alternative structures," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 22-29.
  • Handle: RePEc:fip:fedhep:y:2006:i:qiv:p:22-29:n:v.30no.4
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    References listed on IDEAS

    as
    1. Randall S. Kroszner, 1999. "Can the Financial Markets Privately Regulate Risk? The Development of Derivatives Clearing Houses and Recent Over-the Counter Innovations," CRSP working papers 493, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    2. Bliss, Robert R. & Kaufman, George G., 2006. "Derivatives and systemic risk: Netting, collateral, and closeout," Journal of Financial Stability, Elsevier, vol. 2(1), pages 55-70, April.
    3. Michael H. Moskow, 2006. "Public policy and central counterparty clearing," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 46-50.
    4. James T. Moser, 1998. "Contracting innovations and the evolution of clearing and settlement methods at futures exchanges," Working Paper Series WP-98-26, Federal Reserve Bank of Chicago.
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    Citations

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    Cited by:

    1. Stephens, Eric & Thompson, James R., 2014. "CDS as insurance: Leaky lifeboats in stormy seas," Journal of Financial Intermediation, Elsevier, vol. 23(3), pages 279-299.
    2. Peter Gomber & Peter Rohr & Uwe Schweickert, 2008. "Sports betting as a new asset class—current market organization and options for development," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 22(2), pages 169-192, June.
    3. Arnold, Marc, 2014. "Banks’ Loan Screening Incentives with Credit Risk Transfer: An Alternative to Risk Retention," Working Papers on Finance 1402, University of St. Gallen, School of Finance.
    4. Stephens, Eric & Thompson, James, 2012. "Separation Without Mutual Exclusion in Financial Insurance," Working Papers 2012-8, University of Alberta, Department of Economics.
    5. Mario Bellia & Roberto Panzica & Loriana Pelizzon & Tuomas Peltonen, 2017. "The demand for central clearing: to clear or not to clear, that is the question," ESRB Working Paper Series 62, European Systemic Risk Board.
    6. repec:eee:finmar:v:36:y:2017:i:c:p:91-114 is not listed on IDEAS
    7. Elisabeth Ledrut & Christian Upper, 2007. "Changing post-trading arrangements for OTC derivatives," BIS Quarterly Review, Bank for International Settlements, December.
    8. Vuillemey, G. & Breton, R., 2014. "Endogenous Derivative Networks," Working papers 483, Banque de France.
    9. Stephens, Eric & Thompson, James R., 2017. "Information asymmetry and risk transfer markets," Journal of Financial Intermediation, Elsevier, vol. 32(C), pages 88-99.
    10. repec:cup:jfinqa:v:52:y:2017:i:05:p:2183-2215_00 is not listed on IDEAS
    11. Albert J. Menkveld & Emiliano Pagnotta & Marius A. Zoican, 2013. "Central Clearing and Asset Prices," Tinbergen Institute Discussion Papers 13-181/IV/DSF67, Tinbergen Institute.
    12. Albert Menkveld & Emiliano Pagnotta & Marius Andrei Zoican, 2016. "Does Central Clearing Affect Price Stability? Evidence from Nordic Equity Markets," Working Papers hal-01253702, HAL.
    13. Eric Stephens & James R. Thompson, 2015. "Separation Without Exclusion in Financial Insurance," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 82(4), pages 853-864, December.
    14. Darrell Duffie, 2010. "The Failure Mechanics of Dealer Banks," Journal of Economic Perspectives, American Economic Association, vol. 24(1), pages 51-72, Winter.
    15. John Kiff & Jennifer A. Elliott & Elias G. Kazarian & Jodi G. Scarlata & Carolyne Spackman, 2009. "Credit Derivatives; Systemic Risks and Policy Options?," IMF Working Papers 09/254, International Monetary Fund.
    16. repec:oup:rasset:v:1:y:2011:i:1:p:74-95. is not listed on IDEAS
    17. Gunther Capelle-Blancard, 2010. "Are derivatives dangerous?," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00605908, HAL.
    18. Cruz Lopez, Jorge A. & Harris, Jeffrey H. & Hurlin, Christophe & Pérignon, Christophe, 2017. "CoMargin," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(05), pages 2183-2215, October.
      • Jorge Cruz Lopez & Jeffrey Harris & Christophe Hurlin & Christophe Pérignon, 2015. "CoMargin," Working Papers halshs-00979440, HAL.

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