Interoperability between central counterparties

November 14, 2011
Issue 2011-12

Summary

In reaction to recent requests for interoperability between central counterparties of European stock markets, regulators have issued new guidelines to contain systemic risk. Our analysis confirms that the currently applied cross-CCP risk management model can be a source of contagion, particularly if applied in multilateral frameworks. While regulators' new guidelines eliminate systemic risk, this comes at the cost of an inefficiently overcollateralised clearing system. We discuss further approaches that contain systemic risk while reducing or eliminating overcollateralisation. Interoperability is of economic importance as it may contribute to the efficiency and safety of a worldwide fragmented clearing infrastructure.

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Issue:
12
Pages:
37
JEL classification:
E42, E58, G01, G28
Keywords:
interoperability between central counterparties, financial network, systemic risk, netting efficiency
Year:
2011

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Author(s)

  • Jürg Mägerle

  • Dr. Thomas Nellen

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