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Information insensitive securities: the benefits of central counterparties

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  • David Mills
  • Francesca Carapella

    (Federal Reserve Board of Governors)

Abstract

A role of CCPs that has been identified by policy makers as fostering liquidity and stability of OTC transactions, is to perform margin calls to adjust the available collateral posted for each participant's net position, following the marking to market of securities. In this framework, however, the perception that margin calls foster liquidity is incorrect: traders have even more incentives to acquire information about the securities' payoff so that fewer transactions, which would be welfare improving, are carried out.

Suggested Citation

  • David Mills & Francesca Carapella, 2012. "Information insensitive securities: the benefits of central counterparties," 2012 Meeting Papers 1032, Society for Economic Dynamics.
    • Handle: RePEc:red:sed012:1032
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    References listed on IDEAS

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    2. Gorton, Gary & Metrick, Andrew, 2012. "Securitized banking and the run on repo," Journal of Financial Economics, Elsevier, vol. 104(3), pages 425-451.
    3. Thorsten Koeppl & Cyril Monnet, 2006. "Central Counterparties," 2006 Meeting Papers 513, Society for Economic Dynamics.
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    8. Gary Gorton & Andrew Metrick, 2010. "Regulating the Shadow Banking System," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(2 (Fall)), pages 261-312.
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    Cited by:

    1. Cyril Monnet & Francesca Carapella, 2013. "Dealers' Insurance, Market Structure And Liquidity," 2013 Meeting Papers 1144, Society for Economic Dynamics.
    2. Antinolfi, Gaetano & Carapella, Francesca & Carli, Francesco, 2022. "Transparency and collateral: central versus bilateral clearing," Theoretical Economics, Econometric Society, vol. 17(1), January.
    3. Cyril Monnet & Thomas Nellen, 2021. "The Collateral Costs of Clearing," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 53(5), pages 939-970, August.
    4. Borghan Nezami Narajabad & Cyril Monnet, 2012. "Why Rent When You Can Buy? A Theory of Repurchase Agreements," 2012 Meeting Papers 647, Society for Economic Dynamics.
    5. Bruno Biais & Florian Heider & Marie Hoerova, 2012. "Clearing, Counterparty Risk, and Aggregate Risk," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 60(2), pages 193-222, July.
    6. Carapella, Francesca & Monnet, Cyril, 2020. "Dealers’ insurance, market structure, and liquidity," Journal of Financial Economics, Elsevier, vol. 138(3), pages 725-753.
    7. Carapella, Francesca & Monnet, Cyril, 2020. "Dealers’ insurance, market structure, and liquidity," Journal of Financial Economics, Elsevier, vol. 138(3), pages 725-753.
    8. Gaetano Antinolfi & Francesca Carapella & Francesco Carli, 2019. "Transparency and Collateral: The Design of CCPs' Loss Allocation Rules," Finance and Economics Discussion Series 2019-058, Board of Governors of the Federal Reserve System (U.S.).
    9. Jean-Sébastien Fontaine & Héctor Pérez Saiz & Joshua Slive, 2012. "When Lower Risk Increases Profit: Competition and Control of a Central Counterparty," Staff Working Papers 12-35, Bank of Canada.
    10. Francesco Carli & Francesca Carapella & Gaetano Antinolfi, 2014. "Clearing, transparency, and collateral," 2014 Meeting Papers 1090, Society for Economic Dynamics.
    11. Francesco Palazzo, 2016. "Peer monitoring via loss mutualization," Temi di discussione (Economic working papers) 1088, Bank of Italy, Economic Research and International Relations Area.
    12. Thorsten V. Koeppl, 2013. "The Limits Of Central Counterparty Clearing: Collusive Moral Hazard And Market Liquidity," Working Paper 1312, Economics Department, Queen's University.
    13. Joshua Slive & Jonathan Witmer & Elizabeth Woodman, 2012. "Liquidity and Central Clearing: Evidence from the CDS Market," Staff Working Papers 12-38, Bank of Canada.
    14. Paulo Pereira da Silva & Carlos Vieira & Isabel Vieira, 2018. "Central clearing and CDS market quality," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 38(6), pages 731-753, June.

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