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On the Choice of Central Counterparties in the EU

Gabrielle Demange () and Thibaut Piquard

Working papers from Banque de France

Abstract: New regulations promote the role of Central Counter-Parties (CCPs) as insurers of counterparty risk to stabilize derivative markets. Focusing on the demand side, we investigate how pairs of dealers choose the CCP on which they clear a given transaction. We use transaction data on three main CDS indices and focus on major dealers who are members of the two EU CCPs. Descriptive analysis shows that dealers do not optimize their positions across CCPs. Then, we build and test a reduced form model of CCP's choice. Differences in transaction size, two indicators of CCP's robustness and activities, squared positions to account for dealers' risk aversion, and market volatility affect this choice, but not the collateral costs, proxied by the dealers' positions.

Keywords: Central Counter-Party; Central Clearing; Dealers; Collateral (search for similar items in EconPapers)
JEL-codes: G18 G20 G23 G33 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2022
New Economics Papers: this item is included in nep-ban and nep-eec
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Handle: RePEc:bfr:banfra:868