Template-Type: ReDIF-Paper 1.0
Author-Name: Wenqian Huang
Author-X-Name-First: Wenqian
Author-X-Name-Last: Huang
Author-Name: Haoxiang Zhu
Author-X-Name-First: Haoxiang
Author-X-Name-Last: Zhu
Title: CCP Auction Design
Abstract: Central counterparties (CCPs) are systemically important. When a clearing member defaults, the CCP sells the defaulted portfolio to surviving members in an auction, and losses, if any, are partly absorbed by a cash pool prefunded by the surviving members. We propose a tractable auction model that incorporates this salient feature. We find that "juniorization" – the CCP first uses prefunded cash of members who submit bad bids – increases the auction price. Aggressive juniorization can push the auction price above the fair value and almost eliminate the need to use prefunded resources. Nonetheless, juniorization generates heterogeneous impact on members of different sizes.
Length: 22 pages
Creation-Date: 2021-05
File-URL: https://www.bis.org/publ/work938.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work938.htm
File-Format: text/html
Number: 938
Keywords: central counterparty (CCP), auction, default management
Classification-JEL: D44, G01, G23
Handle: RePEc:bis:biswps:938