Networks of counterparties in the centrally cleared EU-wide interest rate derivatives market

Paweł Fiedor (), Sarah Lapschies and Lucia Országhová ()
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Sarah Lapschies: European Systemic Risk Board Secretariat
Lucia Országhová: European Systemic Risk Board Secretariat, National Bank of Slovakia, University of Economics in Bratislava

No WP 7/2017, Working and Discussion Papers from Research Department, National Bank of Slovakia

Abstract: We perform a network analysis of the centrally cleared interest rate derivatives market in the European Union, by looking at counterparty relations within both direct (house) clearing and client clearing. Since the majority of the gross notional is transferred within central counterparties and their clearing members, client clearing is often neglected in the literature, despite its significance in terms of net exposures. We find that the client clearing structure is very strongly interconnected and contains on the order of 90% of the counterparty relations in the interest rate derivatives market. Moreover, it is more diverse in terms of geography and sectors of the financial market the counterparties are associated with. Client clearing is also significantly more volatile in time than direct clearing. These findings underline the importance of analysing the structure and stability of both direct and client clearing of the interest rate derivatives market in Europe, to improve understanding of this important market and potential contagion mechanisms within it.

Keywords: : systemic risk; interconnectedness; financial networks; interest rate derivatives; central counterparties; client clearing; EMIR data (search for similar items in EconPapers)
JEL-codes: G10 G23 L14 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2017-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Related works:
Working Paper: Networks of counterparties in the centrally cleared EU-wide interest rate derivatives market (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:svk:wpaper:1048

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