How to Analyze the Costs and Benefits of Introducing a Central Counterparty

Central counterparties (CCPs) require a certain level of market development to operate in a safe and efficient manner. This note presents a practical cost-benefit analysis framework for country authorities to decide whether this specific type of fi...

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Main Author:	World Bank
Format:	Working Paper
Language:	English
Published:	Washington, DC: World Bank 2022
Subjects:	MARKET DEVELOPMENT FINANCIAL MARKET INFRASTRUCTURE COST-BENEFIT ANALYSIS FRAMEWORK CENTRAL COUNTERPARTIES CCPs
Online Access:	http://documents.worldbank.org/curated/en/099333205052228715/IDU01658a76e019f204d090ae2d0e6b4f7764210 http://hdl.handle.net/10986/37424

id	okr-10986-37424
recordtype	oai_dc
spelling	okr-10986-374242022-05-14T05:10:36Z How to Analyze the Costs and Benefits of Introducing a Central Counterparty World Bank MARKET DEVELOPMENT FINANCIAL MARKET INFRASTRUCTURE COST-BENEFIT ANALYSIS FRAMEWORK CENTRAL COUNTERPARTIES CCPs Central counterparties (CCPs) require a certain level of market development to operate in a safe and efficient manner. This note presents a practical cost-benefit analysis framework for country authorities to decide whether this specific type of financial market infrastructure will benefit their markets, financial institutions, and investors, or whether the costs of a CCP are higher than its benefits. The note discusses three key questions: (1) Are the necessary preconditions met-for example, is the market sufficiently liquid to enable the CCP to calculate margin; (2) Will a CCP support a well-functioning market; and (3) Is there a positive business case Introducing a CCP is recommended only when all questions can be answered in the affirmative. Otherwise, alternative clearing models should be considered, such as bilateral clearing between financial institutions, multilateral netting with a guarantee, prefunding, or clearing through a CCP abroad. Often, introducing a CCP uncovers a chicken-and-egg problem whereby a CCP will positively impact market liquidity while at the same time a minimum level of market liquidity is a condition to set up a CCP. In such cases, the introduction of a CCP should be part of a comprehensive market development plan. 2022-05-13T16:25:48Z 2022-05-13T16:25:48Z 2022-01-31 Working Paper http://documents.worldbank.org/curated/en/099333205052228715/IDU01658a76e019f204d090ae2d0e6b4f7764210 http://hdl.handle.net/10986/37424 English Equitable Growth, Finance & Institutions Insight; CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank Washington, DC: World Bank Report Publications & Research
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	MARKET DEVELOPMENT FINANCIAL MARKET INFRASTRUCTURE COST-BENEFIT ANALYSIS FRAMEWORK CENTRAL COUNTERPARTIES CCPs
spellingShingle	MARKET DEVELOPMENT FINANCIAL MARKET INFRASTRUCTURE COST-BENEFIT ANALYSIS FRAMEWORK CENTRAL COUNTERPARTIES CCPs World Bank How to Analyze the Costs and Benefits of Introducing a Central Counterparty
relation	Equitable Growth, Finance & Institutions Insight;
description	Central counterparties (CCPs) require a certain level of market development to operate in a safe and efficient manner. This note presents a practical cost-benefit analysis framework for country authorities to decide whether this specific type of financial market infrastructure will benefit their markets, financial institutions, and investors, or whether the costs of a CCP are higher than its benefits. The note discusses three key questions: (1) Are the necessary preconditions met-for example, is the market sufficiently liquid to enable the CCP to calculate margin; (2) Will a CCP support a well-functioning market; and (3) Is there a positive business case Introducing a CCP is recommended only when all questions can be answered in the affirmative. Otherwise, alternative clearing models should be considered, such as bilateral clearing between financial institutions, multilateral netting with a guarantee, prefunding, or clearing through a CCP abroad. Often, introducing a CCP uncovers a chicken-and-egg problem whereby a CCP will positively impact market liquidity while at the same time a minimum level of market liquidity is a condition to set up a CCP. In such cases, the introduction of a CCP should be part of a comprehensive market development plan.
format	Working Paper
author	World Bank
author_facet	World Bank
author_sort	World Bank
title	How to Analyze the Costs and Benefits of Introducing a Central Counterparty
title_short	How to Analyze the Costs and Benefits of Introducing a Central Counterparty
title_full	How to Analyze the Costs and Benefits of Introducing a Central Counterparty
title_fullStr	How to Analyze the Costs and Benefits of Introducing a Central Counterparty
title_full_unstemmed	How to Analyze the Costs and Benefits of Introducing a Central Counterparty
title_sort	how to analyze the costs and benefits of introducing a central counterparty
publisher	Washington, DC: World Bank
publishDate	2022
url	http://documents.worldbank.org/curated/en/099333205052228715/IDU01658a76e019f204d090ae2d0e6b4f7764210 http://hdl.handle.net/10986/37424
_version_	1764487147822252032

How to Analyze the Costs and Benefits of Introducing a Central Counterparty

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