Derivatives Clearing, Central Counterparties and Novation: The Economic Implications

52 Pages Posted: 6 Mar 2021

See all articles by Robert R. Bliss

Robert R. Bliss

affiliation not provided to SSRN

Chryssa Papathanassiou

European Central Bank (ECB)

Date Written: March 8, 2006

Abstract

Derivatives market central counterparties play an important role in exchange traded and some OTC derivatives markets. They exist side by side with bilaterally-cleared derivatives. These two clearing structures share common conceptual elements—netting, credit risk mitigation—though they differ in important details with attendant implications for market structure and systemic risks. That both clearing structures co-exist strongly suggests that neither structure is dominant. The continuing evolution of derivatives clearing involves a tension between public and private interests and the legal environments, both internationally and in particular jurisdictions, which govern derivatives contracts and regulatory agencies. This paper develops a framework for analysing the economic and legal considerations, the public policy choices facing regulators as clearing structures compete and evolve, and the private interests that are at stake.

Keywords: derivatives, clearing, legal framework, economic implications

JEL Classification: G23, K22

Suggested Citation

Bliss, Robert R. and Papathanassiou, Chryssa, Derivatives Clearing, Central Counterparties and Novation: The Economic Implications (March 8, 2006). Available at SSRN: https://ssrn.com/abstract=3761950 or http://dx.doi.org/10.2139/ssrn.3761950

Robert R. Bliss

affiliation not provided to SSRN

Chryssa Papathanassiou (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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