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The impact of margin requirements on voluntary clearing decisions

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  • Onur, Esen
  • Reiffen, David
  • Sharma, Rajiv

Abstract

This paper examines the incentives to voluntarily centrally-clear swaps. It exploits changes resulting from a regulation mandating collateral on uncleared swaps to analyze determinants of traders’ clearing decisions. The rule promoted voluntary clearing by decreasing the relative cost of clearing swaps. Using unique regulatory data, the paper finds that clearing more than quadrupled for exchange rate derivatives that were implicated by this regulation, while clearing for similar but exempt derivatives increased by about one-third. These changes were driven by traders who were already clearinghouse members, suggesting that clearing members have substantially lower marginal clearing costs.

Suggested Citation

  • Onur, Esen & Reiffen, David & Sharma, Rajiv, 2024. "The impact of margin requirements on voluntary clearing decisions," Journal of Financial Markets, Elsevier, vol. 68(C).
    • Handle: RePEc:eee:finmar:v:68:y:2024:i:c:s1386418124000107
    DOI: 10.1016/j.finmar.2024.100892
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    Cited by:

    1. Salil Gadgil, 2024. "Do Credit Default Swaps Still Lead? The Effects of Regulation on Price Discovery," Working Papers 24-04, Office of Financial Research, US Department of the Treasury.

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    More about this item

    Keywords

    Uncleared margin rule; NDF; CCP; Clearing; Margin;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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