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On the Choice of Central Counterparties in the EU

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  • Gabrielle Demange
  • Thibaut Piquard

Abstract

New regulations promote the role of Central Counter-Parties (CCPs) as insurers of counterparty risk to stabilize derivative markets. Focusing on the demand side, we investigate how pairs of dealers choose the CCP on which they clear a given transaction. We use transaction data on three main CDS indices and focus on major dealers who are members of the two EU CCPs. Descriptive analysis shows that dealers do not optimize their positions across CCPs. Then, we build and test a reduced form model of CCP's choice. Differences in transaction size, two indicators of CCP's robustness and activities, squared positions to account for dealers' risk aversion, and market volatility affect this choice, but not the collateral costs, proxied by the dealers' positions.

Suggested Citation

  • Gabrielle Demange & Thibaut Piquard, 2022. "On the Choice of Central Counterparties in the EU," Working papers 868, Banque de France.
    • Handle: RePEc:bfr:banfra:868
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    References listed on IDEAS

    as
    1. Elliott, David, 2013. "Financial Stability Paper No 20: Central counterparty loss-allocation rules," Bank of England Financial Stability Papers 20, Bank of England.
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    More about this item

    Keywords

    Central Counter-Party; Central Clearing; Dealers; Collateral;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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