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How central is central counterparty clearing? A deep dive into a European repo market during the crisis

Author

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  • Ebner, André
  • Fecht, Falko
  • Schulz, Alexander

Abstract

Repo markets offering central counterparty (CCP) clearing and anonymized trading were remarkably resilient during the recent crises. We use the full transaction level dataset on all repo trades on Eurex Repo, including identifiers for market participants, to provide a detailed description of the market's development and microstructure during the crises and under different monetary policy interventions. Overall, we find high excess liquidity being associated with lower private liquidity provision in this market. Cross-segment arbitrage and market making is limited but growing steadily. The reallocation of liquidity risk across banks within this market varies substantially with the general market conditions.

Suggested Citation

  • Ebner, André & Fecht, Falko & Schulz, Alexander, 2016. "How central is central counterparty clearing? A deep dive into a European repo market during the crisis," Discussion Papers 14/2016, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdps:142016
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    References listed on IDEAS

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    1. Peter Hördahl & Michael R King, 2008. "Developments in repo markets during the financial turmoil," BIS Quarterly Review, Bank for International Settlements, December.
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    4. Dunne, Peter & Fleming, Michael J. & Zholos, Andrey, 2011. "Repo Market Microstructure in Unusual Monetary Policy Conditions," Research Technical Papers 8/RT/11, Central Bank of Ireland.
    5. Gara Afonso & Anna Kovner & Antoinette Schoar, 2011. "Stressed, Not Frozen: The Federal Funds Market in the Financial Crisis," Journal of Finance, American Finance Association, vol. 66(4), pages 1109-1139, August.
    6. Paul Agueci & Leyla Alkan & Adam Copeland & Isaac Davis & Antoine Martin & Kate Pingitore & Caroline Prugar & Tyisha Rivas, 2014. "A primer on the GCF Repo® Service," Staff Reports 671, Federal Reserve Bank of New York.
    7. Peter G. Dunne & Michael J. Fleming & Andrey Zholos, 2013. "ECB monetary operations and the interbank repo market," Staff Reports 654, Federal Reserve Bank of New York.
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    Cited by:

    1. Darrell Duffie, 2018. "Financial Regulatory Reform After the Crisis: An Assessment," Management Science, INFORMS, vol. 64(10), pages 4835-4857, October.

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    Keywords

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    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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