Working Paper: NBER ID: w18724
Authors: Robert L. McDonald
Abstract: Policy makers and market participants alike wish to understand the amount, economic significance, and concentration of derivatives trading activity. This paper suggests that systematic measuring and reporting of margin by market participants, disaggregated by asset class, would provide more meaningful insights into derivatives activity. Where margin is not required, it could nevertheless be imputed and reported. The Dodd-Frank financial reform bill, by contrast, moves away from transparency by granting non-financial firms an end-user exemption from posting initial margin on their trades. This is economically equivalent to a borrowing from the counterparty and effectively permits these firms to issue off-balance-sheet debt.
Keywords: derivatives; margin reporting; systemic risk; Dodd-Frank
JEL Codes: G18; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| systematic measuring and reporting of margin by market participants (G10) | understanding of derivatives trading activity (G13) |
| margin not required could be imputed (C20) | meaningful insights into economic significance and concentration of derivatives trading (G15) |
| Dodd-Frank Act's end-user exemption (G18) | systemic risk (E44) |
| Dodd-Frank Act's end-user exemption (G18) | implicit off-balance-sheet debt for non-financial firms (G32) |
| different margin treatments (F12) | perceived economic exposure of firms (F31) |