Central Counterparty Links and Clearing System Exposures
Links between central counterparties (CCPs) enable participants to clear positions in any linked CCP without needing to maintain multiple CCP memberships. While links enable exposure to be reduced by allowing netting across CCPs, CCPs become exposed to one another through the possibility of a CCP default. The change in system exposure resulting from these two effects has recently been of great interest to policymakers, and we assess this quantitatively using a straightforward extension of Duffie and Zhu (2011). Our model shows that CCP links can reduce overall system exposure in most plausible scenarios. This conclusion is robust to changes in assumptions about the nature of participants and their exposures, as well as to the existence of more than two linked CCPs.
|Date of creation:||Oct 2013|
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- Stacey Anderson & Jean-Philippe Dion & Héctor Pérez Saiz, 2013. "To Link or Not To Link? Netting and Exposures Between Central Counterparties," Staff Working Papers 13-6, Bank of Canada.
- Nicholas Garvin, 2012. "Central Counterparty Interoperability," RBA Bulletin, Reserve Bank of Australia, pages 59-68, June.
- Craig Pirrong, 2012. "Clearing and Collateral Mandates: A New Liquidity Trap?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 24(1), pages 67-73, 03.
- Jürg Mägerle & Thomas Nellen, 2011. "Interoperability between central counterparties," Working Papers 2011-12, Swiss National Bank.
- Daniel Heller & Nicholas Vause, 2012. "Collateral requirements for mandatory central clearing of over-the-counter derivatives," BIS Working Papers 373, Bank for International Settlements.
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