Is there a 'race to the bottom' in central counterparties competition?
The European trade and post-trade industries have seen increased competition in the past few years. As a result of the intensifying competitive market pressure, a series of tariff reduction and alterations of risk management models have been implemented by some central counterparties (CCPs) in Europe, which raises the concern of overseers and regulators that the fi nancial soundness and risk mitigation capacity of CCPs could be threatened, leading to a "race to the bottom". To address the concern, this paper presents CCPs' competitive responses both in the fi eld of tariffs and risk management based on the practices of the three CCPs in European equity market-LCH.Clearnet SA, EMCF and EuroCCP. It concludes that, 1) competition in the pan-European equity clearing industry has given rise to CCPs' tariffs-cutting activities, which in part enhances market effi ciency; 2) there's no fi tfor-all risk management mechanism: the CCPs studied apply a common framework while they employ certain different specifi cations in modeling and loss sharing procedures; 3) no solid evidence implies that competition among CCPs has led to a deterioration in the robustness of CCPs' risk management.
|Date of creation:||Dec 2011|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.dnb.nl/en/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Koeppl, Thorsten V. & Monnet, Cyril, 2008.
CFS Working Paper Series
2008/42, Center for Financial Studies (CFS).
- Philipp Haene & Andy Sturm, 2009. "Optimal Central Counterparty Risk Management," Working Papers 2009-07, Swiss National Bank.
When requesting a correction, please mention this item's handle: RePEc:dnb:dnbocs:906. 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: (Rob Vet)
If references are entirely missing, you can add them using this form.