The Value of Central Clearing
Corresponding Author
GUILLAUME VUILLEMEY
Guillaume Vuillemey is at HEC Paris and CEPR. I am grateful to the editor (Philip Bond); an associate editor; an anonymous referee; Patrice Baubeau; Bruno Biais; Jean-Edouard Colliard; Laura Rischbieter; seminar participants at University of Melbourne, Cleveland Fed, Ohio State University, University of Rochester, Arizona State University, University of Amsterdam, HEC Paris, and Paris School of Economics; and conference participants at the 4 Nations' Cup (ESMT), FIRS 2019, EFA 2019, and ACPR Workshop for comments. I thank the Chair ACPR/Risk Foundation: Regulation and Systemic Risk, Investissements d'Avenir (ANR-11-IDEX-0003/Labex Ecodec/ANR-11-LABX-0047), and ANR (FIRR) for supporting this work. I have read The Journal of Finance disclosure policy and have no conflicts of interest to disclose.
Correspondence: Guillaume Vuillemey, Department of Finance, HEC Paris, 1 Rue de la Libération, Jouy-en-Josas 78351, France; e-mail: vuillemey@hec.fr.
Search for more papers by this authorCorresponding Author
GUILLAUME VUILLEMEY
Guillaume Vuillemey is at HEC Paris and CEPR. I am grateful to the editor (Philip Bond); an associate editor; an anonymous referee; Patrice Baubeau; Bruno Biais; Jean-Edouard Colliard; Laura Rischbieter; seminar participants at University of Melbourne, Cleveland Fed, Ohio State University, University of Rochester, Arizona State University, University of Amsterdam, HEC Paris, and Paris School of Economics; and conference participants at the 4 Nations' Cup (ESMT), FIRS 2019, EFA 2019, and ACPR Workshop for comments. I thank the Chair ACPR/Risk Foundation: Regulation and Systemic Risk, Investissements d'Avenir (ANR-11-IDEX-0003/Labex Ecodec/ANR-11-LABX-0047), and ANR (FIRR) for supporting this work. I have read The Journal of Finance disclosure policy and have no conflicts of interest to disclose.
Correspondence: Guillaume Vuillemey, Department of Finance, HEC Paris, 1 Rue de la Libération, Jouy-en-Josas 78351, France; e-mail: vuillemey@hec.fr.
Search for more papers by this authorABSTRACT
I study a contracting innovation that suddenly insulated traders of hedging contracts against counterparty risk: central clearing counterparties (CCPs) for derivatives. The first CCP was created in Le Havre (France) in 1882, in the coffee futures market. Using triple difference-in-differences estimation, I show that central clearing changed the geography of trade flows Europe-wide, to the benefit of Le Havre. Inspecting the mechanism using trader-level data, I find that the CCP solved both a “missing market” problem and adverse selection issues. Central clearing also facilitated entry of new traders in the market. The successful contracting innovation quickly spread to other exchanges.
Supporting Information
| Filename | Description |
|---|---|
| jofi12902-sup-0001-InternetAppendix.PDF1.2 MB | Appendix S1: Internet Appendix. |
| jofi12902-sup-0002-Replication-code.zip579.8 KB | Replication code. |
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