European Central Bank - eurosystem
Search Options
Home Media Explainers Research & Publications Statistics Monetary Policy The €uro Payments & Markets Careers
Suggestions
Sort by

Claudia Guagliano

17 June 2019
WORKING PAPER SERIES - No. 95
Details
Abstract
Using a sample of more than 18,000 Undertakings for Collective Investment in Transferable Securities,or UCITS, this paper aims to provide a first overview of the use of credit default swaps by EU UCITSfunds. We show that UCITS funds only account for a small share of the overall EU credit derivativesmarket. The CDS market is highly concentrated, with thirteen large dealers acting as counterparty to thevast majority of CDS transactions that involve UCITS funds. The use of CDS by UCITS is mainlyconcentrated in fixed-income funds and funds that rely on so-called alternative strategies. Funds that useCDS tend to be much larger on average. The analysis also reveals three salient features in the UCITSfunds’ use of CDS. Firstly, funds with directional strategies, such as fixed-income and allocation funds (ormixed funds), are on aggregate net sellers of CDS. Secondly, a large majority of CDS underlyings areindices, from which funds can gain exposure to multiple entities at once within one sector or region.Lastly, most sovereign single-name CDS are written on emerging market issuers, highlighting the rolethat these instruments can play in facilitating access to less liquid markets.
JEL Code
F30 : International Economics→International Finance→General
G10 : Financial Economics→General Financial Markets→General
G15 : Financial Economics→General Financial Markets→International Financial Markets
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
20 October 2017
WORKING PAPER SERIES - No. 55
Details
Abstract
Collateral plays a very important role in financial markets. Without easy access to high-quality collateral, dealers and market participants would find it more costly to trade, with a negative impact on market liquidity and the real economy through increased financing costs. The role of collateral has become increasingly significant since the global financial crisis, partly due to regulatory reforms. Using bond-level data from both repo and securities lending markets, this paper introduces a new measure of collateral reuse and studies the drivers of the cost of obtaining high-quality collateral, i.e. the collateral scarcity premium, proxied by specialness of government bond repos. We find that the cost of obtaining high-quality collateral increases with demand pressures in the cash market (short-selling activities), even in calm financial market conditions. In bear market conditions ‒ when good collateral is needed the most ‒ this could lead to tensions in some asset market segments. Collateral reuse may alleviate some of these tensions by reducing the collateral scarcity premia. Yet, it requires transparency and monitoring due to the financial stability risks associated. Finally, we find that the launch of the ECB quantitative easing programme has a statistically significant, albeit limited, impact on sovereign collateral scarcity premia, but this impact is offset by the beginning of the ECB Securities Lending Programme.
JEL Code
E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors