Access, Competition and Risk in Centrally Cleared Markets

Jean-Sebastien Fontaine, Hector Perez Saiz () and Joshua Slive

Bank of Canada Review, 2012, vol. 2012, issue Autumn, 14-22

Abstract: Central counterparties can make over-the-counter markets more resilient and reduce systemic risk by mitigating and managing counterparty credit risk. These benefits are maximized when access to central counterparties is available to a wide range of market participants. In an over-the-counter market, there is an important trade-off between risk and competition. A model of an over-the-counter market shows how risk and competition could be influenced by the incentives of market participants as they move to central clearing. In a centrally cleared market, there may be less risk when participation is high. This helps to explain why regulators have put in place requirements for fair, open and risk-based access criteria.

Date: 2012
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