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The Cost of Clearing Fragmentation

Benos, Evangelos; Huang, Wenqian; Menkveld, Albert J; Vasios, Michalis

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Chair in Finance, risk and Banking

Wenqian Huang

Albert J Menkveld

Michalis Vasios


Fragmenting clearing across multiple central counterparties (CCPs) is costly because global dealers cannot net positions across CCPs. They have to collateralize both the short position in one CCP and an offsetting long position in another CCP. This, coupled with a structural net order imbalance across CCPs, can cause prices to persistently differ across them ("the CCP basis"). Tests based on unique CCP data for interest-rate derivatives (IRDs), yield broad empirical support for this intuition and suggest that the clearing friction costs sellers clearing in LCH, the largest European CCP for IRDs, $80 million daily.


Benos, E., Huang, W., Menkveld, A. J., & Vasios, M. (2023). The Cost of Clearing Fragmentation. Management Science,

Journal Article Type Article
Acceptance Date Oct 13, 2022
Online Publication Date Jul 28, 2023
Publication Date Jul 28, 2023
Deposit Date Nov 23, 2022
Publicly Available Date Nov 25, 2022
Journal Management Science
Print ISSN 0025-1909
Electronic ISSN 1526-5501
Peer Reviewed Peer Reviewed
Keywords central clearing; CCP basis; collateral; fragmentation * Evangelos Benos: EvangelosBenos@nottinghamacuk Wenqian Huang: WenqianHuang@bisorg Albert J Menkveld: albertjmenkveld@gmailcom Michalis Vasios: michalisv@gmailcom We would like to thank
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