Non disponibile in italiano
Francesco Vacirca
- 18 June 2024
- FINANCIAL INTEGRATION AND STRUCTURE BOXFinancial Integration and Structure in the Euro Area 2024Details
- Abstract
- The United Kingdom’s decision to leave the EU impacted the EU’s financial infrastructure, in particular those financial market segments heavily reliant on UK clearing services. This box analyses how the market shares of euro area CCPs offering similar clearing services to their UK competitors have evolved since Brexit. Although the market share of euro area CCPs has increased over time, the over-reliance of domestic market participants on non-euro area clearing services persists. This could have serious implications for the financial stability of the EU, especially under stressed market conditions. Reducing the reliance of European markets on third countries for the provision of critical clearing services remains a priority for EU policymakers from a financial stability perspective, together with building well-integrated, resilient clearing markets in the EU.
- JEL Code
- G15 : Financial Economics→General Financial Markets→International Financial Markets
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
F36 : International Economics→International Finance→Financial Aspects of Economic Integration
- 5 April 2023
- OCCASIONAL PAPER SERIES - No. 314Details
- Abstract
- In this paper we aim to provide a holistic understanding of the Initial Margin (IM) models used by Central Counterparties (CCPs) in Europe. In addition to discussing their relevance in terms of CCP risk management and their importance for the functioning of financial markets, we provide an overview of the main modelling frameworks used, including Standard Portfolio Analysis of Risk (SPAN) and Value at Risk (VaR) models.By leveraging on publicly available data, we provide an up-to-date picture of current modelling practices for specific cleared product classes, as well as various trends in IM modelling practices in Europe. We show how IM model frameworks vary materially, depending on the CCP’s past choices and the products it clears. Despite a propensity to switch to VaR models, idiosyncrasies and differences across CCPs are likely to persist.We conclude by highlighting current and upcoming challenges and risks to CCP IM model frameworks and linking the current status quo with ongoing and upcoming regulatory work at European and international level.
- JEL Code
- G15 : Financial Economics→General Financial Markets→International Financial Markets
G18 : Financial Economics→General Financial Markets→Government Policy and Regulation
G19 : Financial Economics→General Financial Markets→Other
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors
G28 : Financial Economics→Financial Institutions and Services→Government Policy and Regulation
G32 : Financial Economics→Corporate Finance and Governance→Financing Policy, Financial Risk and Risk Management, Capital and Ownership Structure, Value of Firms, Goodwill
- 16 November 2022
- FINANCIAL STABILITY REVIEW - ARTICLEFinancial Stability Review Issue 2, 2022Details
- Abstract
- Energy sector firms use energy derivatives under different strategies depending on their main area of activity, business model and exposure to risk in physical markets. The significant volatility and skyrocketing prices seen in energy markets since March 2022 have resulted in large margin calls, generating liquidity risks for derivatives users. Strategies employed by companies to alleviate liquidity stress may lead to an accumulation of credit risk for their lenders or their counterparties in less collateralised segments of the derivatives market. Further price increases would accentuate nascent vulnerabilities, creating additional stress in a concentrated market. These issues underline the need to review margining practices and enhance the liquidity preparedness of all market participants to deal with large margin calls.
- JEL Code
- Q02 : Agricultural and Natural Resource Economics, Environmental and Ecological Economics→General→Global Commodity Markets
G13 : Financial Economics→General Financial Markets→Contingent Pricing, Futures Pricing
G20 : Financial Economics→Financial Institutions and Services→General
- 17 November 2021
- FINANCIAL STABILITY REVIEW - BOXFinancial Stability Review Issue 2, 2021Details
- Abstract
- This box establishes stylised facts about the significant increase in initial margin (IM) in the euro area derivatives market during the March 2020 market turmoil. First, it shows that the increase was concentrated almost entirely in centrally cleared derivatives and driven mainly by equity, credit and interest rate portfolios. Second, by comparing static portfolios with those where portfolio repositioning took place, the IM increase is decomposed into (i) changes attributable to the CCP model sensitivity to market volatility, and (ii) changes attributable to portfolio repositioning by investors. For centrally cleared interest rate and credit derivatives (where this method is applicable), CCP model sensitivity to market volatility is found to be a key driver of the IM increase. Overall, the results suggest that it is important to develop a clearer understanding of “excessive procyclicality” for IM and possibly, on the basis of this common understanding, to review the models which CCPs use to calibrate IMs. The supervisory and regulatory framework governing the liquidity management of market participants, and in particular that of some non-bank financial intermediaries, should also be strengthened.
- JEL Code
- C60 : Mathematical and Quantitative Methods→Mathematical Methods, Programming Models, Mathematical and Simulation Modeling→General
G10 : Financial Economics→General Financial Markets→General
G13 : Financial Economics→General Financial Markets→Contingent Pricing, Futures Pricing
- 17 December 2019
- WORKING PAPER SERIES - No. 2342Details
- Abstract
- The global nature of derivatives markets, and the presence of large key financial institutions trading in several markets across the globe, call for taking a “macro” view on the interconnections arising in the clearing network. Based on the analysis of derivatives transactions data reported under the EMIR Regulation we reconstruct the network of relationships in the centrally-cleared derivatives market and analyse its topology providing insight into its structural features. The centrally-cleared derivatives network is modelled in the form of a multiplex network where each layer is represented by a derivatives asset class market. In turn, each node represents a single counterparty in that market. On the basis of different centrality measures applied to the collapsed aggregate and to the multiplex network, the critical participants of the euro area centrally-cleared derivatives market are identified and their level of interconnectedness analysed. This paper provides insight on how the collected data pursuant to the EMIR regulation can be used to shed light on the complex network of interrelations underlying the financial markets. It provides indications on structural features of the euro area centrally-cleared derivatives market and discusses policy relevant implications and future applications.
- JEL Code
- G01 : Financial Economics→General→Financial Crises
G15 : Financial Economics→General Financial Markets→International Financial Markets
G23 : Financial Economics→Financial Institutions and Services→Non-bank Financial Institutions, Financial Instruments, Institutional Investors