In the third part of our series on the G20 mandate for clearing of standardised OTC derivatives, William Mitting looks at how the market can compete.
While regulators in the US and Europe seem bent on dictating
the minutiae of how the mandate should be enforced practically,
they have done little to set out the competitive landscape in
which clearing houses will operate.
In a hugely influential 2009 white paper, Stanford
University academics Darrell Duffie and Haoxiang Zhu argue that
the benefits of central clearing are negated by multiple
clearing houses, especially where different CCPs specialise in
different asset classes. They argue that in these instances,
the benefits of bilateral netting across different asset
classes are eliminated resulting in higher collateral
"Our results show that introducing a CCP for a particular
set of derivatives reduces average counterparty exposure if and
only if the number of clearing participants is sufficiently
large relative to the exposure on derivatives that continue to
be bilaterally netted," the study said.
This article is available to subscribers and registered users
Please log in to continue reading.
Not yet registered? Take a free trial.
If you have already taken a free trial you
have ongoing access to the analysis section of FOW.com including this story.
Log in using your details below to read.
Already have an account? |