Guarantee requirements by European central counterparties and international volatility spillovers

This analysis addressed the potential systemic effects of guarantee requirements by central counterparties. Using data from the Spanish BME and German Eurex central clearing counterparties and controlling for tail risk and monetary and real activity variables, we found a significant, positive, and robust relationship between the guarantees required and the spillover or total connectedness effects among nine financial assets in the Spanish, United States, and German capital markets. Bad economic times also had a significant incremental effect on the relationship between guarantees and connectedness. These findings are robust across central clearing corporations and futures contracts in the IBEX 35, DAX 30, and EURO STOXX 50. In addition, an event study indicated that global spillover effects tend to increase before central counterparty institutions raise their guarantees. The implication of the findings is that European clearing institutions react to rather than cause bad economic times. The authors acknowledge financial support from the Ministry of Science, Innovation, and Universities through grant PGC2018-095072-B-I00. In addition, Gonzalo Rubio acknowledges financial support from Generalitat Valencia grant Prometeo/2017/158 and Ana González-Urteaga acknowledges financial support through grant PID2019-104304GBI00 funded by MCIN/AEI/10.13039/501100011033, and UPNA Research Grant for Young Researchers, Edition 2018.