Central clearing and collateral demand

Darrell Duffie, Martin Scheicher and Guillaume Vuillemey ()

Journal of Financial Economics, 2015, vol. 116, issue 2, 237-256

Abstract: We use an extensive data set of bilateral credit default swap (CDS) positions to estimate the impact on collateral demand of new clearing and margin regulations. The estimated collateral demands include initial margin and the frictional demands associated with the movement of variation margin through the network of market participants. We estimate the impact on total collateral demand of more widespread initial margin requirements, increased novation of CDS to central clearing parties (CCPs), an increase in the number of clearing members, the proliferation of CCPs of both specialized and non-specialized types, collateral rehypothecation practices, and client clearing. System-wide collateral demand is increased significantly by the application of initial margin requirements for dealers, whether or not the CDS are cleared. Given these dealer-to-dealer initial margin requirements, mandatory central clearing is shown to lower, not raise, system-wide collateral demand, provided there is no significant proliferation of CCPs. Central clearing does, however, have significant distributional consequences for collateral requirements across market participants.

Keywords: Central clearing party; Margin; Credit default swap; Collateral; Client clearing (search for similar items in EconPapers)
JEL-codes: G15 G20 G28 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (144)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304405X14002761
Full text for ScienceDirect subscribers only

Related works:
Working Paper: Central clearing and collateral demand (2014)
Working Paper: Central Clearing and Collateral Demand (2014)
Working Paper: Central Clearing and Collateral Demand (2014)
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:eee:jfinec:v:116:y:2015:i:2:p:237-256

DOI: 10.1016/j.jfineco.2014.12.006

Access Statistics for this article

Journal of Financial Economics is currently edited by G. William Schwert

More articles in Journal of Financial Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().