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CCP interoperability and system stability

Author

Listed:
  • Xiaobing Feng

    (Shanghai University of International Business and Economics, Shanghai 201620, P. R. China2Shanghai Jiao Tong University, Shanghai 200240, P. R. China3Boston University, Boston MA 02215, USA)

  • Haibo Hu

    (East China University of Science and Technology, Shanghai 200237, P. R. China)

Abstract

To control counterparty risk, financial regulations such as the Dodd–Frank Act are increasingly requiring standardized derivatives trades to be cleared by central counterparties (CCPs). It is anticipated that in the near term future, CCPs across the world will be linked through interoperability agreements that facilitate risk sharing but also serve as a conduit for transmitting shocks. This paper theoretically studies a networked network with CCPs that are linked through interoperability arrangements. The major finding is that the different configurations of networked network CCPs contribute to the different properties of the cascading failures.

Suggested Citation

  • 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.
    • Handle: RePEc:wsi:ijmpcx:v:27:y:2016:i:03:n:s012918311650025x
    DOI: 10.1142/S012918311650025X
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    References listed on IDEAS

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    1. Paolo Tasca & Stefano Battiston, "undated". "Diversification and Financial Stability," Working Papers CCSS-11-001, ETH Zurich, Chair of Systems Design.
    2. Nathanael Cox & Nicholas Garvin & Gerard Kelly, 2013. "Central Counterparty Links and Clearing System Exposures," RBA Research Discussion Papers rdp2013-12, Reserve Bank of Australia.
    3. Jürg Mägerle & Dr. Thomas Nellen, 2011. "Interoperability between central counterparties," Working Papers 2011-12, Swiss National Bank.
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