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The Concentration of Cleared Derivatives: Can Access to Direct CCP Clearing for End-Users Address the Challenge?

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Abstract

Cleared derivatives contracts are now concentrated among a small and dwindling number of institutions. Many policymakers and regulators have argued that this concentration has adverse consequences, some of which may have systemic risk implications. The authors explore the benefits and challenges of encouraging major end-users of derivatives to become direct clearing members of central counterparties (CCPs). If done prudently, increasing and diversifying the pool of clearing members and redistributing outstanding derivatives contracts across them may help CCPs become more resilient.

Suggested Citation

  • Nahiomy Alvarez & John McPartland, 2019. "The Concentration of Cleared Derivatives: Can Access to Direct CCP Clearing for End-Users Address the Challenge?," Working Paper Series WP-2019-6, Federal Reserve Bank of Chicago.
    • Handle: RePEc:fip:fedhwp:wp-2019-06
    DOI: 10.21033/wp-2019-06
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    References listed on IDEAS

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    1. James T. Moser, 1994. "Origins of the modern exchange clearinghouse: a history of early clearing and settlement methods at futures exchanges," Working Paper Series, Issues in Financial Regulation 94-3, Federal Reserve Bank of Chicago.
    2. Jerome H. Powell, 2017. "Central Clearing and Liquidity : a speech at the Federal Reserve Bank of Chicago Symposium on Central Clearing, Chicago, Illinois, June 23, 2017," Speech 957, Board of Governors of the Federal Reserve System (U.S.).
    3. John McPartland, 2005. "Clearing and settlement demystified," Chicago Fed Letter, Federal Reserve Bank of Chicago, issue Jan.
    4. Alexandre Lazarow, 2011. "Lessons from International Central Counterparties: Benchmarking and Analysis," Discussion Papers 11-4, Bank of Canada.
    5. Smith, Jonathan & Ferrara, Gerardo & Rodriguez, Francesc, 2018. "The impact of the leverage ratio on client clearing," Bank of England working papers 735, Bank of England.
    6. Douglas D. Evanoff & Daniela Russo & Robert Steigerwald, 2006. "Policymakers, researchers, and practitioners discuss the role of central counterparties," Economic Perspectives, Federal Reserve Bank of Chicago, vol. 30(Q IV), pages 2-21.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Central counterparties (CCPs); clearinghouses; derivatives; financial markets;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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