Resolution of Failing Central Counterparties

Darrell Duffie

Research Papers from Stanford University, Graduate School of Business

Abstract: A central counterparty (CCP) is a financial market utility that lowers counterparty default risk on specified financial contracts by acting as a buyer to every seller, and as a seller to every buyer. When at risk of failure, a CCP could be forced into a normal insolvency process such as bankruptcy, or an administrative failure resolution process. This chapter reviews some alternative approaches to the design of insolvency and failure resolution regimes for CCPs. I focus on the allocation of losses and the question of whether and how to provide for continuity of clearing services. I discuss how one might adapt to CCPs some of the failure resolution approaches currently being designed for other forms of systemically important financial institutions. A key policy question is when to interrupt a contractually based CCP default management process with an overriding failure resolution process.

JEL-codes: G20 G28 G33 (search for similar items in EconPapers)
Date: 2014-12
New Economics Papers: this item is included in nep-mfd
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Citations: View citations in EconPapers (15)

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Chapter: Resolution of Failing Central Counterparties (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:3256

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