Central Counterparty Exposure in Stressed Markets

51 Pages Posted: 19 Dec 2019

See all articles by Wenqian Huang

Wenqian Huang

Bank for International Settlements

Albert J. Menkveld

Vrije Universiteit Amsterdam

Shihao Yu

Columbia University

Multiple version iconThere are 2 versions of this paper

Date Written: December 18, 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, yielding 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, which is desirable if motivated by hedging but worrying if due to speculation.

Keywords: central counterparties (CCPs), crowding risk, market stress

JEL Classification: G10, G23, G20

Suggested Citation

Huang, Wenqian and Menkveld, Albert J. and Yu, Shihao, Central Counterparty Exposure in Stressed Markets (December 18, 2019). BIS Working Paper No. 833, Available at SSRN: https://ssrn.com/abstract=3506276

Wenqian Huang (Contact Author)

Bank for International Settlements ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002

HOME PAGE: http://wenqianhuang.org

Albert J. Menkveld

Vrije Universiteit Amsterdam ( email )

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

Shihao Yu

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

HOME PAGE: http://www.shihaoyu.org

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