IDEAS home Printed from https://ideas.repec.org/p/ags/quedwp/273708.html
   My bibliography  Save this paper

Optimal Clearing Arrangements for Financial Trades

Author

Listed:
  • Koeppl, Thorsten
  • Monnet, Cyril
  • Temzelides, Ted

Abstract

Clearinghouses support financial trades by keeping records of transactions and by providing liquidity through short-term credit that is periodically cleared by participants. We study efficient clearing arrangements for formal exchanges, where traders must clear with a clearinghouse, and for over-the-counter (OTC) markets, where trades can be cleared bilaterally. When clearing is costly, we show that it can be efficient to subsidize the clearing process for OTC transactions by charging a higher price for the clearing of transactions in exchanges. This necessitates a clearinghouse that operates across both markets. As a clearinghouse offers credit, intertemporal incentives are needed in order to ensure settlement. An increase in the costs of liquidity provision worsens the incentives to settle. Hence, when liquidity costs increase, concerns about default must lead to a tightening of liquidity provision.

Suggested Citation

  • Koeppl, Thorsten & Monnet, Cyril & Temzelides, Ted, 2009. "Optimal Clearing Arrangements for Financial Trades," Queen's Economics Department Working Papers 273708, Queen's University - Department of Economics.
    • Handle: RePEc:ags:quedwp:273708
    DOI: 10.22004/ag.econ.273708
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/273708/files/qed_wp_1222.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.273708?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
    ---><---

    More about this item

    Keywords

    ;
    ;

    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:ags:quedwp:273708. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/qedquca.html .

    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.