The Impact of Margin Requirements on Voluntary Clearing Decisions

Abstract

This paper examines the incentives to voluntarily centrally-clear swaps. It exploits changes resulting from a regulation mandating collateral on uncleared swaps to analyze determinants of traders’ clearing decisions. The rule promoted voluntary clearing by decreasing the relative cost of clearing swaps. Using unique regulatory data, the paper finds that clearing more than quadrupled for exchange rate derivatives that were implicated by this regulation, while clearing for similar
but exempt derivatives increased by about one-third. These changes were driven by traders who were already clearinghouse members, suggesting that clearing members have substantially lower marginal clearing costs.

Keywords: Uncleared Margin Rule, NDF, CCP, clearing, Margin