IDEAS home Printed from https://ideas.repec.org/p/rba/rbardp/rdp2013-12.html
   My bibliography  Save this paper

Central Counterparty Links and Clearing System Exposures

Author

Listed:
  • Nathanael Cox

    (Reserve Bank of Australia)

  • Nicholas Garvin

    (Reserve Bank of Australia)

  • Gerard Kelly

    (Reserve Bank of Australia)

Abstract

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.

Suggested Citation

  • Nathanael Cox & Nicholas Garvin & Gerard Kelly, 2013. "Central Counterparty Links and Clearing System Exposures," RBA Research Discussion Papers rdp2013-12, Reserve Bank of Australia.
  • Handle: RePEc:rba:rbardp:rdp2013-12
    as

    Download full text from publisher

    File URL: http://www.rba.gov.au/publications/rdp/2013/pdf/rdp2013-12.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Craig Pirrong, 2012. "Clearing and Collateral Mandates: A New Liquidity Trap?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 24(1), pages 67-73, March.
    2. Daniel Heller & Nicholas Vause, 2012. "Collateral requirements for mandatory central clearing of over-the-counter derivatives," BIS Working Papers 373, Bank for International Settlements.
    3. Nicholas Garvin, 2012. "Central Counterparty Interoperability," RBA Bulletin, Reserve Bank of Australia, pages 59-68, June.
    4. 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.
    5. Jürg Mägerle & Thomas Nellen, 2011. "Interoperability between central counterparties," Working Papers 2011-12, Swiss National Bank.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Xiaobing Feng & Haibo Hu, 2016. "CCP interoperability and system stability," International Journal of Modern Physics C (IJMPC), World Scientific Publishing Co. Pte. Ltd., vol. 27(03), pages 1-18, March.
    2. Garratt, Rodney, 2016. "Centralized netting in financial networks," University of California at Santa Barbara, Economics Working Paper Series qt79t1q6cg, Department of Economics, UC Santa Barbara.

    More about this item

    Keywords

    clearing; netting; financial stability; central counterparty;

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:rba:rbardp:rdp2013-12. 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: (Paula Drew). General contact details of provider: http://edirc.repec.org/data/rbagvau.html .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.