The cost of clearing fragmentation

Evangelos Benos, Wenqian Huang, Albert Menkveld and Michalis Vasios

No 826, BIS Working Papers from Bank for International Settlements

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.

Keywords: central clearing; CCP basis; collateral; fragmentation (search for similar items in EconPapers)
JEL-codes: G10 G12 G14 (search for similar items in EconPapers)
Pages: 47 pages
Date: 2019-12
New Economics Papers: this item is included in nep-mst
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Journal Article: The Cost of Clearing Fragmentation (2024)
Working Paper: The cost of clearing fragmentation (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:826

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