The Cost of Clearing Fragmentation

40 Pages Posted: 1 Jun 2019 Last revised: 24 Nov 2019

See all articles by Evangelos Benos

Evangelos Benos

Bank of England

Wenqian Huang

Bank for International Settlements

Albert J. Menkveld

VU Amsterdam; Tinbergen Institute

Michalis Vasios

Norges Bank Investment Management (NBIM)

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Date Written: May 31, 2019


Fragmenting clearing across multiple central counter-parties (CCPs) is costly. This is because dealers providing liquidity globally, cannot net trades cleared in different CCPs and this increases their collateral costs. These costs are then passed on to their clients through price distortions which take the form of a price differential (basis) when the same products are cleared in different CCPs. Using proprietary data, we document an economically significant CCP basis for dollar swap contracts cleared both at the Chicago Mercantile Exchange (CME) and the London Clearing House (LCH) and provide empirical evidence consistent with a collateral cost explanation of this basis.

Keywords: central clearing, CCP basis, collateral, fragmentation

JEL Classification: G10, G12, G14

Suggested Citation

Benos, Evangelos and Huang, Wenqian and Menkveld, Albert J. and Vasios, Michalis, The Cost of Clearing Fragmentation (May 31, 2019). Bank of England Working Paper No. 800, May 2019. Available at SSRN: or

Evangelos Benos (Contact Author)

Bank of England ( email )

Threadneedle Street
London, EC2R 8AH
United Kingdom

Wenqian Huang

Bank for International Settlements ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002


Albert J. Menkveld

VU Amsterdam ( email )

De Boelelaan 1105
Amsterdam, 1081HV
+31 20 5986130 (Phone)
+31 20 5986020 (Fax)

Tinbergen Institute ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS

Michalis Vasios

Norges Bank Investment Management (NBIM) ( email )

Queensberry House
3 Old Burlington Street
London, W1S 3AE
United Kingdom

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