The Impact of CCPss Margin Policies on Repo Markets

Miglietta, Arianna; Picillo, Cristina; Pietrunti, Mario

doi:10.2139/ssrn.2722442

Cited by 31 publications

(9 citation statements)

References 108 publications

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“…Aragon and Strahan (2012) use Lehman bankruptcy as instrument and find that stocks held by Lehman-connected funds (that is, funds that used Lehman as prime broker) experienced greater increment in market illiquidity following the bankruptcy than other stocks. Miglietta, Picillo, and Pietrunti (2015) document a significant and positive effect of variations of CCPs' initial margins on the Italian MTS GC repo rates. Hedegaard (2014) finds that following a margin increase, the price impact of trading increases for both the affected contract and for the remaining contracts in the market, documenting funding illiquidity spillovers.…”

Section: Related Literaturementioning

confidence: 89%

Funding Constraints and Market Illiquidity in the European Treasury Bond Market

Research¹

2018

SSRN Journal

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Theoretical studies show that shocks to funding constraints should affect and be affected by market illiquidity. However, little is known about the empirical magnitude of such responses because of the intrinsic endogeneity of illiquidity shocks. This paper adopts an identification technique based on the heteroskedasticity of illiquidity proxies to infer the reaction of one measure to shocks affecting the other. Using data for the European Treasury bond market, we find evidence that funding illiquidity shocks affect bond market illiquidity and of a weaker simultaneous feedback reverse. We also investigate the determinants of the magnitude of these effects in the cross-section of bonds and find that the responses of individual bonds' market illiquidity to funding illiquidity shocks increase with bond duration, with the credit risk of the issuer, and with haircuts.

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Section: Related Literaturementioning

confidence: 89%

Funding Constraints and Market Illiquidity in the European Treasury Bond Market

Research¹

2018

SSRN Journal

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“…The MTS Repo platform covers a significant percentage of the European market transactions and a leading share of the Italian repo market. Miglietta, Picillo, and Pietrunti (2015) document that a large majority, up to 90%, of the current repo transactions on the MTS Repo platform is CCP-cleared. There are two CCPs involved in the clearing of the Italian repo market: LCH Clearnet SA and Cassa Compensazione and Garanzia (CC&G).…”

Section: Ecb Working Paper Series No 2065 / May 2017mentioning

confidence: 99%

The importance of being special: Repo markets during the crisis

Corradin

Maddaloni

2020

Journal of Financial Economics

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We study how the Italian sovereign bond scarcity premia -specialness -in the repo market were affected by the European Central Bank (ECB)'s purchases during the Euro area sovereign debt crisis. We propose and calibrate a search-based dynamic model with a central bank acting as a buy-and-hold investor. Consistent with model predictions, ECB purchases drive specialness of targeted securities in combination with short-selling. Special benchmark bonds entail a positive cash premium but their market liquidity decreases when purchased by the ECB. Short-sellers were more likely to fail-to-deliver very special bonds while holders of these bonds were less inclined to pledge them as collateral to the ECB liquidity operations.JEL classification: E43, E51, G01, G12, G23.

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“…• An increase in the level of initial margin required to support the non-defaulters' cleared portfolios. Various authorities observe that spikes in initial margin demands could be softened through more conservative business-as-usual margin policies (IMF, 2007;CGFS, 2010;Miglietta et al, 2015). In relation to cleared business, that involves the allocation of losses between defaulter pays (initial margin) and survivors pay (default fund) philosophies.…”

Section: Test Scenario In a Post-default Environmentmentioning

confidence: 99%

The Morning After--The Impact on Collateral Supply After a Major Default

Turing

Singh²

2018

IMF Working Papers

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Changes to the regulatory system introduced after the financial crisis include not only mandatory clearing of OTC derivatives at central counterparties and margining of uncleared derivatives, but also prudential measures, including notably a "Liquidity Coverage Ratio" which obliges firms to set aside high-quality liquid assets (HQLA) as a stopgap against anticipated cash outflows. We examine factors which may affect the demand for HQLA in a severely stressed market following a hypothetical default of a major clearing member. Immediately following a major default, the amount of HQLA demanded by the whole market would spike. We estimate the size of the spike and draw conclusions as to whether the depth of the market is adequate to absorb it.

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The Impact of CCPss Margin Policies on Repo Markets

Cited by 31 publications

References 108 publications

Funding Constraints and Market Illiquidity in the European Treasury Bond Market

Funding Constraints and Market Illiquidity in the European Treasury Bond Market

The importance of being special: Repo markets during the crisis

The Morning After--The Impact on Collateral Supply After a Major Default

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