Central counterparty anti-procyclicality tools: a closer assessment

Atsushi Maruyama and Fernando Cerezetti

Journal of Financial Market Infrastructures

Abstract: In the new market and regulatory environment following the 2007–8 crisis, central counterparties (CCPs) need to find the right balance between ensuring the safety of their business and avoiding the creation of additional distress in the market in the form of procyclical margin calls. However, balancing these conflicting goals poses a number of challenges, and no one-size-fits-all solution appears to exist. This paper investigates whether the substantial focus placed on the procyclicality of initial margin reflects both the original concerns at the time of the crisis and the intrinsic modus operandi of CCPs. We argue that the imposition of a procyclicality framework shaped by lessons learned from securities financing and bilateral over-the-counter markets to CCPs may have created unexpected challenges. We support the idea that the best mitigation mechanisms for procyclicality may be achieved through the establishment of an outcome-based approach and the enhanced disclosure of margining practices, especially regarding intraday mark-to-market procedures and variation margin calls.

References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.risk.net/journal-of-financial-market-i ... -a-closer-assessment (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rsk:journ7:6785891

Access Statistics for this article

More articles in Journal of Financial Market Infrastructures from Journal of Financial Market Infrastructures
Bibliographic data for series maintained by Thomas Paine ().