Journal of Financial Market Infrastructures

Risk.net

A descriptive analysis of the client clearing network in the European derivatives landscape

Argyris Kahros, Alessandro Pioli, Thomas Carraro, Marios Gravanis and Francesco Vacirca

  • Client clearing service provision is concentrated in a small number of institutions.
  • The vast majority of clients clear derivatives through only a single clearing member.
  • Euro area clearing members clear derivatives largely in the United Kingdom, Germany and the United States.
  • EMIR data presents practical and technical challenges for fruitful analysis.

We present the findings of a detailed descriptive analysis of client clearing activity for derivatives in the euro area, as well as that of clearing members more broadly. To the best of our knowledge, this study, which covers all over-the-counter and exchange-traded asset classes and contract types, represents the first such detailed exploration and characterization of derivatives client clearing in the literature. Our findings highlight the concentrated nature of client clearing service provision, with 15 clearing members accounting for almost 90% of the total client-cleared notional. We show the magnitude, type and location of clearing carried out by members for their own house trades and on behalf of clients. Our analysis encompasses the clearing activity of over 36 000 clients domiciled in over 70 countries, and over 330 clearing members from 26 countries. The data used to conduct this analysis is trade-level information on derivatives positions made available to authorities under the European Market Infrastructure Regulation, and reported by market participants to trade repositories. This big financial data set, while highly granular and rich, presents a number of challenges related to issues of data quality, as well as the effective management and analysis of the volume of information.

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