Compressing Over-the-Counter Markets

87 Pages Posted: 4 May 2017 Last revised: 11 Jan 2019

See all articles by Marco D'Errico

Marco D'Errico

University of Zurich; European Systemic Risk Board

Tarik Roukny

Massachusetts Institute of Technology (MIT); KU Leuven - Faculty of Business and Economics (FEB)

Date Written: January 2019


The size and structure of over-the-counter markets have become key policy issues. We show how such markets can be subject to large and rapid reductions of notional in presence of portfolio compression cycles. We find that the levels of compression are driven by the tightly-knit and concentrated trading structure of over-the-counter markets. Using granular European derivatives data, we estimate reduction levels consistent with historical changes observed since the Global Financial Crisis. When participants have access to both central clearing and portfolio compression, we find large netting failures if clearinghouses proliferate. Allowing for multilateral compression across clearinghouses by-and-large offsets this adverse effect.

Keywords: over-the-counter trading, multilateral netting, derivatives, networks, financial regulation

JEL Classification: G20, G28, G15, C61, L14

Suggested Citation

D'Errico, Marco and Roukny, Tarik, Compressing Over-the-Counter Markets (January 2019). Available at SSRN: or

Marco D'Errico

University of Zurich

Andreasstrasse 15
Zurich, 8050

European Systemic Risk Board ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314

Tarik Roukny (Contact Author)

Massachusetts Institute of Technology (MIT) ( email )

77 Massachusetts Avenue
50 Memorial Drive
Cambridge, MA 02139-4307
United States

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000

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