Systemic Risk in Derivatives Markets: A Pilot Study Using CDS Data

22 Pages Posted: 15 Jul 2016

See all articles by Robleh Ali

Robleh Ali

Bank of England

Nicholas Vause

Bank of England

Filip Zikes

Board of Governors of the Federal Reserve System

Date Written: July 08, 2016

Abstract

In this paper, we draw on network analysis and a sample of derivatives data from a trade repository to demonstrate how the systemic importance of derivatives market participants may be measured. As trade repository data become more comprehensively available to authorities, the same measures could be applied more broadly. We consider the importance of market participants both to the smooth functioning of derivatives markets and in terms of their potential contribution to financial distress. In relation to market functioning, we study some measures that take into account only immediate counterparty positions and others that consider the whole counterparty network of positions. In some cases, the network of positions beyond immediate counterparties makes a significant difference to the rank ordering of the systemic importance of institutions. This means it is important for authorities responsible for financial stability to have access to data beyond the counterparty positions of institutions in their own jurisdictions. In relation to financial distress, we highlight the importance of identifying institutions which may contribute to liquidity strains, as increasing collateralisation of counterparty exposures will diminish credit risk but could at times sharply raise demand for liquid assets to post as collateral.

Keywords: systemic risk, derivatives, CDS data

Suggested Citation

Ali, Robleh and Vause, Nicholas and Zikes, Filip, Systemic Risk in Derivatives Markets: A Pilot Study Using CDS Data (July 08, 2016). Bank of England Financial Stability Paper No. 38. Available at SSRN: https://ssrn.com/abstract=2809667 or http://dx.doi.org/10.2139/ssrn.2809667

Robleh Ali (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Nicholas Vause

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Filip Zikes

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
121
Abstract Views
725
rank
242,776
PlumX Metrics