Nothing is Clear about Clearing!
17 Pages Posted: 1 Apr 2015 Last revised: 8 Nov 2015
Date Written: March 31, 2015
The rationale behind clearing in financial markets is twofold: clearing houses are aimed at reducing the vulnerability to systemic risks and at changing the allocation of default risk in financial markets and, thus, improve the efficiency of financial markets. This paper mitigates the standard idea according to which clearing reduces systemic risk and promotes market efficiency. The visibility associated to the clearing system will have a cost that most regulators are not ready to face.
Keywords: Regulation, Central Clearing, Collateral
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