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Expansion of Central Clearing

Daniel Heller

Bank for International Settlements (BIS)

Nicholas Vause

Bank for International Settlements Staff

June 6, 2011

BIS Quarterly Review, June 2011

By the end of 2012, all standardised over-the-counter (OTC) derivatives will have to be cleared through central counterparties (CCPs). We estimate the financial resources that different CCPs would need to clear safely the full volume of interest rate swaps and credit default swaps currently held by major derivatives dealers. Our results suggest that these dealers already have sufficient unencumbered assets to meet initial margin requirements, but that a few may need to increase their cash holdings to meet variation margin calls in a timely way. We also find that the potential costs of individual or multiple dealer defaults for CCPs and their non-defaulting clearing members are likely to be small relative to their equity as long as CCPs factor into initial margin requirements the extent of tail risk and time variation in risk of different types of derivatives. Finally, clearing different types of OTC derivatives in a single CCP could reduce both margins and collective loss-absorbing resources.

Number of Pages in PDF File: 15

JEL Classification: G24, G28

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Date posted: September 1, 2012  

Suggested Citation

Heller, Daniel and Vause, Nicholas, Expansion of Central Clearing (June 6, 2011). BIS Quarterly Review, June 2011. Available at SSRN: http://ssrn.com/abstract=1864710 or http://dx.doi.org/10.2139/ssrn.1864710

Contact Information

Daniel Heller (Contact Author)
Bank for International Settlements (BIS) ( email )
Centralbahnplatz 2
Basel, Basel-Stadt 4002
Nicholas Vause
Bank for International Settlements Staff ( email )
Centralbahnplatz 2
Basel, Basel-Stadt 4002
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