IMF Working Paper-Beyond Clearing: Central Counterparties' Investment and Risk Management of Cash from Margin Calls
you are currently viewing:IMF Working Paper-Beyond Clearing: Central Counterparties' Investment and Risk Management of Cash from Margin CallsOctober 2, 2026--Summary This paper introduces a framework that expands this focus to include investment risks associated with the significant cash CCPs hold as margin and applies it to CCPs operating in-or of systematic importance for- the European Union (EU). Specifically, we analyze 'non-default' losses stemming from market risk and counterparty credit risk within CCPs’ cash investment strategies. Our findings show that the impact of market risk is generally contained due to strict eligibility criteria and the short duration of investments. However, counterparty credit risk from reverse repo exposures can be substantial, with frequently insufficient haircuts that do not provide sufficient protection against collateral devaluation, posing the potential to significantly deplete available CCP resources. Quantifying these risks sheds light on how margin calls can transmit financial stress from capital markets into money markets via CCPs' cash management practices. Source: imf.org |
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