Interdependencies in the euro area derivatives clearing network: a multilayer network approach

The global nature of derivatives markets, and the presence of large key financial institutions trading in several markets across the globe, calls for taking a “macro†view of the interconnections arising in the clearing network. Based on the analysis of derivatives transactions data reported under the European Market Infrastructure Regulation (EMIR), the authors;reconstruct the network of relationships in the centrally cleared derivatives market and analyze its topology, providing insight into its structural features. The centrally cleared derivatives network is modeled in the form of a multiplex network, where each layer is represented by a derivatives asset class market. In turn, each node represents a single counterparty in that market. On the basis of different centrality measures applied to the collapsed aggregate network and to the multiplex network, the critical participants of the euro area centrally cleared derivatives market are identified and their level of interconnectedness is analyzed. This paper provides insight into how the collected data pursuant to the EMIR can be used to shed light on the complex network of interrelations underlying the financial markets. It provides indications of the structural features of the euro area centrally cleared derivatives market and discusses policy-relevant implications as well as future applications.