Risk Management Practices of Central Counterparties: European vs. Third-Country CCPs

43 Pages Posted: 1 Jan 2020

See all articles by Randy Priem

Randy Priem

Saint-Louis University, Brussels; KU Leuven

Alexandre Girard

Saint-Louis University, Brussels; University of Namur

Date Written: November 13, 2019

Abstract

Relying on recent CPMI-IOSCO public quantitative disclosure (PQD) data provided by 35 central counterparties (CCPs) over the 2015-2018 period, this paper empirically explores the risk management practices of central counterparties. We examine whether European CCPs are more prudent relative to their third-country peers. Our results indicate that EU CCPs request from their clearing members initial margins and default fund contributions that are of higher quality compared to those requested by non-EU CCPs. Omnibus and individual client segregation is more common in EU CCPs, suggesting a higher level of asset protection for clearing members. Regarding investment risk management, EU CCPs prefer to deposit cash at central banks, while non-EU CCPs rather have cash deposits at commercial banks. European CCPs have almost three times as many liquid resources than non-EU CCPs and rely more on cash deposited at central banks of issue. Their non-EU peers prefer unsecured cash deposits at commercial banks and unsecured committed lines of credit as liquidity resources.

Keywords: central counterparties, default, risk management, margin requirements, EMIR

JEL Classification: G23, G28, K22, K23

Suggested Citation

Priem, Randy and Girard, Alexandre, Risk Management Practices of Central Counterparties: European vs. Third-Country CCPs (November 13, 2019). Available at SSRN: https://ssrn.com/abstract=3503373 or http://dx.doi.org/10.2139/ssrn.3503373

Randy Priem (Contact Author)

Saint-Louis University, Brussels ( email )

43 Boulevard du Jardin botanique
Brussels, 1000
Belgium

KU Leuven ( email )

Oude Markt 13
Leuven, Vlaams-Brabant 3000
Belgium

Alexandre Girard

Saint-Louis University, Brussels ( email )

43 Boulevard du Jardin botanique
Brussels, 1000
Belgium

University of Namur ( email )

8, rempart de la vierge
Namur, 5000
Belgium

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