On the Choice of Central Counterparties in the EU

Abstract

This paper studies competition between EU CCPs on the CDS markets. Gathering data on market shares, we show that CCPs have a monopoly for single-name CDS and compete on indices along various dimensions. Using transactions data, we then focus on the major dealers who alternatively clear their transactions on the two main CCPs. Estimating their choice of CCP reveals that fees, measures of CCP’s robustness and activity, dealers’ risk, and market volatility are significant but not dealers’ positions, suggesting that, for these dealers, saving on collateral costs is secondary relative to the benefits of dual membership and quality.

Keywords: central counter-party, central clearing, dealers, collateral

JEL Classification: G20, G23, G18, G33