The cost of clearing fragmentation
Albert Menkveld () and
No 826, BIS Working Papers from Bank for International Settlements
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
New Economics Papers: this item is included in nep-mst
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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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