The Value of Central Clearing

88 Pages Posted: 1 Oct 2018 Last revised: 6 Aug 2019

Date Written: August 5, 2019


I study a contracting innovation that suddenly insulated traders of hedging contracts against counterparty risk: central clearing counterparties (CCPs) for derivatives. The first CCP was created in Le Havre (France) in 1882, in the coffee futures market. Using triple difference-in-differences estimation, I show that central clearing changed the geography of trade flows Europe-wide, to the benefit of Le Havre. Inspecting the mechanism using trader-level data, I find that the CCP solved both a "missing market" problem and adverse selection issues. Central clearing also facilitated entry of new traders in the market. The successful contracting innovation quickly spread to other exchanges.

Suggested Citation

Vuillemey, Guillaume, The Value of Central Clearing (August 5, 2019). HEC Paris Research Paper No. FIN-2018-1307, Available at SSRN: or

Guillaume Vuillemey (Contact Author)

HEC Paris - Finance Department ( email )

1 rue de la Libération
Paris, Not Applicable 78351
+33660204275 (Phone)


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