Template-Type: ReDIF-Paper 1.0
Author-Name: Evangelos Benos
Author-X-Name-First: Evangelos
Author-X-Name-Last: Benos
Author-Name: Wenqian Huang
Author-X-Name-First: Wenqian
Author-X-Name-Last: Huang
Author-Name: Albert Menkveld
Author-X-Name-First: Albert
Author-X-Name-Last: Menkveld
Author-Name: Michalis Vasios
Author-X-Name-First: Michalis
Author-X-Name-Last: Vasios
Title: The cost of clearing fragmentation
Abstract: Fragmenting clearing across multiple central counterparties (CCPs) is costly. This is because dealers providing liquidity globally, cannot net trades cleared in different CCPs and this increases their collateral costs. These costs are then passed on to their clients through price distortions which take the form of a price differential (basis) when the same products are cleared in different CCPs. Using proprietary data, we document an economically significant CCP basis for U.S. dollar swap contracts cleared both at the Chicago Mercantile Exchange (CME) and the LCH in London and provide evidence consistent with a collateral cost explanation of this basis.
Length: 47 pages
Creation-Date: 2019-12
File-URL: https://www.bis.org/publ/work826.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work826.htm
File-Format: text/html
Number: 826
Classification-JEL: G10, G12, G14
Keywords: central clearing, CCP basis, collateral, fragmentation
Handle: RePEc:bis:biswps:826