Bruno Biais, Florian Heider, and Marie Hoerova, Incentive compatible centralised clearing, Financial Stability Review (Banque de France), vol. 161, April 2013.


Policy-makers around the world recognise central clearing counterparties (CCPs) as a key tool to enhance financial stability. Recent research supports the arguments for an increased role for CCPs. CCPs can insure against counterparty risk through mutualisation, enable implementation of adequate margin requirements, save on collateral through greater netting efficiency and promote transparency in the market. The authors point out, however, that information asymmetries matter for clearing and that there may be a trade-off between ex post insurance and ex ante incentives. To be beneficial central clearing must therefore be incentive compatible. The authors discuss how risk management practices of CCPs can be designed to mitigate incentive problems. CCPs themselves must be properly governed, supervised and their competitive environment carefully monitored.

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