Central Counterparty Exposure in Stressed Markets

Management Science, Forthcoming

49 Pages Posted: 16 Dec 2016 Last revised: 2 Feb 2020

See all articles by Wenqian Huang

Wenqian Huang

Bank for International Settlements

Albert J. Menkveld

VU Amsterdam; Tinbergen Institute

Shihao Yu

VU Amsterdam; Tinbergen Institute

Multiple version iconThere are 2 versions of this paper

Date Written: January 31, 2020

Abstract

Time is valuable, particularly in stressed markets. As central counterparties (CCPs) have become systemically important, we need to understand the dynamics of their exposure towards clearing members at high frequencies. We track such exposure and decompose it which leads to the following insights. The composition of CCP exposure is fundamentally different in the tails. At extreme levels or during rapid increases, there is elevated crowding. This is the result of clearing members all concentrating their positions on a single security or a particular portfolio, desirable if motivated by hedging, worrying if due to speculation.

Keywords: Central counterparties (CCPs), Crowding risk, Market stress

JEL Classification: G10, G23, G20

Suggested Citation

Huang, Wenqian and Menkveld, Albert J. and Yu, Shihao, Central Counterparty Exposure in Stressed Markets (January 31, 2020). Management Science, Forthcoming . Available at SSRN: https://ssrn.com/abstract=2886167 or http://dx.doi.org/10.2139/ssrn.2886167

Wenqian Huang

Bank for International Settlements ( email )

Centralbahnplatz 2
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HOME PAGE: http://wenqianhuang.org

Albert J. Menkveld (Contact Author)

VU Amsterdam ( email )

De Boelelaan 1105
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+31 20 5986020 (Fax)

Tinbergen Institute ( email )

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Shihao Yu

VU Amsterdam ( email )

De Boelelaan 1105
Amsterdam, ND North Holland 1081 HV
Netherlands
+31 613509697 (Phone)

HOME PAGE: http://www.shihaoyu.org

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, Noord-Holland 1082 MS
Netherlands
+31 205984722 (Phone)

HOME PAGE: http://www.shihaoyu.org

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