On the choice of central counterparties in the EU

We study competition between European Union’s Central CounterParties (CCPs) on the credit default swap (CDS) market. Using data on market shares, we show that CCPs have a monopoly for single-name CDSs and compete on indices along various dimensions. Using transactions data, we focus on the major dea...

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Bibliographic Details
Published in:Journal of financial markets (Amsterdam, Netherlands) Netherlands), 2023-06, Vol.64, p.100819, Article 100819
Main Authors: Demange, Gabrielle, Piquard, Thibaut
Format: Article
Language:English
Subjects:
Central clearing
Central counter-party
Collateral
Dealers
Economics and Finance
Humanities and Social Sciences
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Summary:We study competition between European Union’s Central CounterParties (CCPs) on the credit default swap (CDS) market. Using data on market shares, we show that CCPs have a monopoly for single-name CDSs and compete on indices along various dimensions. Using transactions data, we focus on the major dealers who alternatively clear their transactions on the two main CCPs. Estimating their choice of CCP reveals that fees, CCPs’ robustness and activity, dealers’ risk, and market volatility are significant. Dealers’ positions indicate that saving on collateral costs is secondary relative to the benefits of dual membership and quality. •We study competition between EU CCPs in the CDS markets.•CCPs compete on the main indices and enjoy monopolies on remaining single-name CDS.•We test how major dealers choose the CCP on which they clear a given transaction.•Fees, CCPs’ robustness, dealers’ CDS spreads, and market volatility drive this choice.•But not dealers’ positions, indicative of collateral costs.
ISSN:1386-4181
1878-576X
DOI:10.1016/j.finmar.2023.100819