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Discussion Paper
Towards Increasing Complexity: The Evolution of the FX Market
The foreign exchange market has evolved extensively over time, undergoing important shifts in the types of market participants and the mix of instruments traded, within a trading ecosystem that has become increasingly complex. In this post, we discuss fundamental changes in this market over the past twenty-five years and highlight some of the implications for its future evolution. Our analysis suggests that maintaining a healthy price discovery process and fostering a level playing field among participants are areas to watch for challenges. The consequences of the evolution of the FX ...
Journal Article
Cleared Margin Setting at Selected Central Counterparties
Interviews with senior personnel at six of the world?s largest central counterparty clearing houses and research by financial markets staff shed light on regulations, principles, and best practices in margin setting for derivatives.
Working Paper
Optimal Bidder Selection in Clearing House Default Auctions
Central counterparties' ability to hold successful default auctions is critically important to financial stability. However, due to the unique features of these auctions, standard auction theory results do not apply. We present a model of CCP default auctions that incorporates both the vital, but non-standard, objective of minimizing the likelihood it suffers reputationally damaging losses and the potential for information leakage to affect CCP members' private portfolio valuations. This gives insight into the key question of how CCPs should select auction participants. In particular, we ...
Speech
Opening Remarks: Public Policy Symposium on OTC Derviatives Clearing
A speech delivered by Charles Evans before the Public Policy Symposium on OTC Derivative Clearing on September 3, 2010, in Chicago, IL.
Newsletter
Managing Risk in Global Financial Markets: CCP Governance, Supervisory Stress Testing, and Default Management Auctions
The second annual Symposium on OTC Derivatives was held in Shanghai on June 26, 2018. This event was cosponsored by the People?s Bank of China and the Federal Reserve Bank of Chicago and hosted by CCP12 (The Global Association of Central Counterparties). Its three panels focused on central counterparty (CCP) governance, supervisory stress testing, and default management auctions.
Journal Article
The Zero Lower Bound Remains a Medium-Term Risk
Financial markets—specifically derivatives—contain information about the range of probable future short-term interest rates. The information from this statistical distribution can help measure the perceived risk of interest rates returning to the zero lower bound in the future. The risk varies over time, driven mainly by the expected level of interest rates. At longer forecast horizons, a higher risk of returning to the lower bound primarily reflects a higher amount of uncertainty. Currently, the perceived risk appears slim over the next few years but is significant at longer horizons.
Newsletter
Taking a Deep Dive into Margins for Cleared Derivatives
Central counterparties (CCPs) are institutions that become the buyer to every seller and seller to every buyer in cleared markets. By design, CCPs have a matched book of positions. As a result, their liabilities to clearing members with winning positions are exactly matched by incoming payments from those on the losing side of positions.
Speech
The LIBOR Countdown Has Not Stopped
Remarks at the IMN Virtual Investors' Conference on LIBOR.
Speech
A Resolution for 2021: No New LIBOR
Remarks at the Securities Industry and Financial Markets Association’s LIBOR Transition Forum (delivered via videoconference).
Journal Article
Can Broader Access to Direct CCP Clearing Reduce the Concentration of Cleared Derivatives?
In November 2008, at the height of the global financial crisis, leaders from the Group of Twenty (G20) nations, representing the world’s largest economies, convened in Washington, DC, to develop a new regulatory framework to help foster financial stability. They came out of that Washington summit with several noteworthy ideas.1 One was to strengthen over-the-counter (OTC) derivatives markets, where defaults had been serious problems during the financial crisis. In particular, G20 leaders agreed to move more of this business onto regulated exchanges and central counterparties (CCPs) as a way ...