Indicators for the Monitoring of Central Counterparties in the EU

In this paper, we analyse the network of exposures constructed by using the UK trade repository data for three different categories of contracts: interest rate, credit, and foreign exchange derivatives. We study how liquidity shocks related to variation margins propagate across the network and translate into payment deficiencies across different derivative markets. A key finding of the paper is that, in extreme theoretical scenarios where liquidity buffers are small, a handful of institutions may experience significant spillover effects due to the directionality of their portfolios. Additionally, we show that two novel multiplex centrality measures, the Functional Multiplex Eigenvector Centrality and the Functional Multiplex PageRank, can be used as a proxy for the vulnerability of financial institutions, with the Functional Multiplex PageRank improving on the results that can be obtained using the Functional Multiplex Eigenvector Centrality. KEYWORDS clearing house (CCP), financial networks, liquidity shock, multiplex networks, systemic risk JEL CLASSIFICATION

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Multiplex network analysis of the UK over‐the‐counter derivatives market

Bardoscia

Bianconi

Ferrara

2019

Int. J Fin Econ

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Central Counterparties are Too Big for the European Securities and Markets Authority (Alone): Constructive Critique of the 2019 CCP Supervision Regulation

Canini

2021

Eur Bus Org Law Rev

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Once seen as the solution to the systemic risk of over-the-counter derivatives, central counterparties (CCPs) have become a source of concern for the financial stability of the European Union (EU). Distress of a single CCP might be transferred to clearing members and others CCPs, thereby endangering EU monetary and fiscal stability. However, the European Market Infrastructure Regulation (EMIR) has left fiscal responsibility as well as day-to-day supervision of EU-based CCPs (EU-CCPs) at the national level, albeit cross-border colleges of authorities can overturn key decisions of national supervisors. The Commission concluded that these supervisory arrangements needed to be reformed because they hamper the development of a single coherent EU approach to CCP supervision. Although the Commission had proposed to centralise EU-CCP supervision in the European Securities and Markets Authority (ESMA), the final 2019 CCP Supervision Regulation seeks to improve EMIR’s ineffective collegial framework by establishing an internal CCP Supervisory Committee within ESMA. Nevertheless, the continuing lack of loss mutualisation would keep on hindering the development of a single approach to EU-CCP supervision. Moreover, the new regulation adds another layer of complexity to the EMIR framework and clashes with the European monetary constitution. If an agreement on loss mutualisation was reached, EU-CCP supervision should be centralised in two EU bodies along objective lines: while the European Central Bank should be tasked with EU-CCP prudential supervision, ESMA should be responsible for EU-CCP conduct of business supervision. This framework would improve EU-CCP supervision and fit in with the current EU governance at once.

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Indicators for the Monitoring of Central Counterparties in the EU

Cited by 2 publications

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Multiplex network analysis of the UK over‐the‐counter derivatives market

Multiplex network analysis of the UK over‐the‐counter derivatives market

Central Counterparties are Too Big for the European Securities and Markets Authority (Alone): Constructive Critique of the 2019 CCP Supervision Regulation

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