Time is valuable, particularly in stressed markets. Because central counterparties (CCPs) have become systemically important, we need to understand the dynamics of their exposure toward 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.
Bibliographical noteFunding Information:
History: This paper was accepted by Gustavo Manso, finance. Funding: This work was supported by Nederlandse Organisatie voor Wetenschappelijk Onderzoek, Research Talent [Grant 406.17.556], and Vici [Grant 016.Vici.185.068.5562].
Copyright: © 2020 INFORMS
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- Central counterparties (CCPs)
- Crowding risk
- Market stress