Sarah Lapschies
- 15 September 2017
- WORKING PAPER SERIES - No. 54Details
- Abstract
- We perform a network analysis of the centrally cleared interest rate derivatives market in the European Union, by looking at counterparty relations within both direct (house) clearing and client clearing. Since the majority of the gross notional is transferred within central counterparties and their clearing members, client clearing is often neglected in the literature, despite its significance in terms of net exposures. We find that the client clearing structure is very strongly interconnected and contains on the order of 90% of the counterparty relations in the interest rate derivatives market. Moreover, it is more diverse in terms of geography and sectors of the financial market the counterparties are associated with. Client clearing is also significantly more volatile in time than direct clearing. These findings underline the importance of analysing the structure and stability of both direct and client clearing of the interest rate derivatives market in Europe, to improve understanding of this important market and potential contagion mechanisms within it.
- JEL Code
- G10 : Financial Economics→General Financial Markets→General
L14 : Industrial Organization→Market Structure, Firm Strategy, and Market Performance→Transactional Relationships, Contracts and Reputation, Networks
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
- 29 March 2018
- OCCASIONAL PAPER SERIES - No. 14Details
- Abstract
- This ESRB Occasional Paper complements the publication of indicators on central counterparties (CCPs) in the ESRB's Risk Dashboard as part of its monitoring framework. It provides a methodological background to the development of the individual measures and discusses different aspects that should be considered when designing a monitoring framework for CCPs. The paper also highlights a number of areas in which more granular data are required in order, for example, to monitor the interconnectedness of CCPs within the broader financial system.CCPs play a key role in financial markets, as they reduce counterparty credit risk. This role is now heightened following post-crisis reforms of the over-the-counter (OTC) derivatives markets. Since CCPs may be viewed as systemically important institutions, it is crucial to ensure that they are regulated and monitored effectively. The ESRB has, therefore, sought to strengthen the framework used to analyse developments at CCPs in the EU from a macroprudential perspective.Each monitoring framework relies on the availability of suitable data. It is therefore positive that CCPs publish data on a quarterly basis under the CPMI-IOSCO public quantitative disclosure framework. These data provide a rich source of information covering several aspects of CCPs' functioning and are the basis of the indicators the ESRB has developed to analyse developments in central clearing in the EU.The indicators are designed to provide a macroprudential view over time of CCPs' resources, liquidity and collateral policies, margin and haircut requirements, interoperability arrangements as well as market structure and concentration at CCP level. The indicators cover all CCPs that are authorised within the EU, although the values of individual measures across CCPs should be analysed and interpreted with caution, bearing in mind that there are significant differences between individual CCPs’ business models, membership structures and products cleared.
- JEL Code
- G10 : Financial Economics→General Financial Markets→General
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation