Central Counterparty Exposure in Stressed Markets
48 Pages Posted: 16 Dec 2016 Last revised: 4 Dec 2019
Date Written: March 21, 2019
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: Suggested Citation