Abstract
This study evaluates the role of central counterparties (CCPs) in the over-the-counter market during the 2008–2009 global financial crisis. It shows that the CCPs allowed the premium to appreciate in times of stress by taking advantage of the unique feature of JGB futures. We estimate CCP premium by comparing 6.75- and 7-year JGBs, which generate almost the same cash flow, differing in the linkage to CCP’s settlement through JGB futures, and find that a CCP premium emerged during the crisis and disappeared afterward. Furthermore, we show that investors’ settlement via CCPs drastically increased. Our results support the effectiveness of recent regulatory reforms that mitigate counterparty risk through CCPs.
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