IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

Markets for CCPs and Regulation: Considering Unintended Consequences

Listed author(s):
  • Wibaut, Serge


    (Université Catholique de Louvain (Belgium))

  • Wilford, D Sykes


    (The Citadel)

Registered author(s):

    Central clearing counterparties (CCPs) have become a cru- cial element of the financial architecture and as such they have lately attracted the attention of prudential authorities at the highest level emphasising their crucial, if not too well understood, role in the financial system, while also reflecting anxiety at imagining the possibility of a main clearing house failing during times of stress. Post Lehman directives and legislation, both in Europe and the U.S., have placed more emphasis on CCPs within the global financial system as a possible “fix” to derivatives related banking system risk. Many papers have argued for mutualisation of counter party risk, at various degrees, to better stave off another financial crisis, which may be driven, in particular, by derivatives trad- ing. In this paper issues related to regulation of this already heavily regulated industry are discussed in light of the in- surance industry literature, focusing on potential issues that may arise from various efforts to “solve counterparty prob- lems” with greater regulation or legislative directive. Raising concerns about the unintended consequences of particular forms of socialization or regulation of CCPs, the work intends to highlight possible side effects of centralized or monopoly (either from regulation or fiat) systems for counterparty clear- ing that may (will likely) lead to greater, not less, systematic risk in ways not foreseen in any potential legislation. To do so, the authors build several simple conceptual structures of markets for CCPs and discuss various profit maximiz- ing structures that may be taken by a CCP under different conditions with allusion to the insurance industry. What becomes clear from the discussion is that the various busi- ness models will lead to complexities not easily anticipated and understood due to the interactions of many different economic agents. Regulation, both existing and potential, quickly complicates the various business relationships that allow markets to function and various products and agents to interact at all levels. Simple solutions to the systematic is- sues raised by the financial crisis via regulation or legislation can have far from simple implications for the stability of the system as a whole.

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below under "Related research" whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Article provided by Capco Institute in its journal Journal of Financial Transformation.

    Volume (Year): 34 (2012)
    Issue (Month): ()
    Pages: 105-118

    in new window

    Handle: RePEc:ris:jofitr:1510
    Contact details of provider: Postal:
    77 Water Street, 10th Floor, New York NY 10005

    Phone: +1 212 284 8600
    Web page:

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:ris:jofitr:1510. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Prof. Shahin Shojai)

    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 references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.