Central counterparty auction design

Ferrara, G., Li, X. and Marszalec, D. 2019. Central counterparty auction design. Journal of Financial Market Infrastructures. 8 (2), pp. 47-58 2019.119. https://doi.org/10.21314/JFMI.2019.119

TitleCentral counterparty auction design
TypeJournal article
AuthorsFerrara, G., Li, X. and Marszalec, D.
Abstract

We analyze the role of auctions in managing the default of a central counterparty's clearing member. We first consider two established sealed-bid auction formats in which clearing members simultaneously submit bids for a defaulting clearing member's portfolio: first price and first price with budget constraints. We argue that the use of some form of penalty could have significant implications for financial stability by inefficiently distributing losses deriving from the unallocated portfolio to surviving clearing members. In response to these potential adverse implications, we propose a third auction type, second price with loss-sharing, which increases the revenue by allowing bidders to consider potential losses within their bidding function without passively waiting for a possible form of penalty.

KeywordsAuction
Default Management
Central Counterparty
Loss Distribution
Risk Allocation
Financial Stability
Article number2019.119
JournalJournal of Financial Market Infrastructures
Journal citation8 (2), pp. 47-58
ISSN2049-5404
2049-5412
Year2019
PublisherRisk Journals
Publisher's version
File Access Level
Open (open metadata and files)
Digital Object Identifier (DOI)https://doi.org/10.21314/JFMI.2019.119
Web address (URL)https://www.risk.net/journal-of-financial-market-infrastructures/7564226/central-counterparty-auction-design
Publication dates
Published22 Jun 2020

Related outputs

A Point‐of‐Care Sensing Platform for Multiplexed Detection of Chronic Kidney Disease Biomarkers Using Molecularly Imprinted Polymers
Li, Y., Luo, Liuxiong, Kong, Yingqi, George, Sophiamma, Li, Yujia, Guo, Xiaotong, Li, Xin, Yeatman, Eric, Davenport, Andrew, Li, Ying and Li, B. 2024. A Point‐of‐Care Sensing Platform for Multiplexed Detection of Chronic Kidney Disease Biomarkers Using Molecularly Imprinted Polymers. Advanced Functional Materials. https://doi.org/10.1002/adfm.202316865

A Comparison of Chitosan Adhesion to KOH and H2O2 Pre-Treated Electrospun Poly(3-Hydroxybutyrate) Nanofibers
Zhou, Yansheng, Li, Daqing, Li, Xin, Li, Ying, Li, Bing and Zhou, Fenglei 2023. A Comparison of Chitosan Adhesion to KOH and H2O2 Pre-Treated Electrospun Poly(3-Hydroxybutyrate) Nanofibers. Fibers. 11 (11) 91. https://doi.org/10.3390/fib11110091

The role of hormones in financial markets
Bose, S., Ladley, D. and Li, X. 2020. The role of hormones in financial markets. International Review of Financial Analysis. 67 101434. https://doi.org/10.1016/j.irfa.2019.101434

Permalink - https://westminsterresearch.westminster.ac.uk/item/qzvw5/central-counterparty-auction-design


Share this

Usage statistics

103 total views
109 total downloads
These values cover views and downloads from WestminsterResearch and are for the period from September 2nd 2018, when this repository was created.