Clearing Markets and Client Clearing Services with Salil Gadgil, Robin Lumsdaine
This paper studies how central clearing affects market access and the interactions between dealers and their non-dealer clients. Using confidential transaction‑level data, we show that clients receive better pricing on their cleared trades, consistent with our findings that clearing adoption leads clients to expand their sets of dealer trading partners and improves collateral efficiency for dealers. To utilize central counterparties, clients must obtain clearing agent services from dealers. We establish that the provision of such services produces spillover benefits for dealers’ market-making activity by improving pricing power and client retention. Clients preferentially choose clearing agents with stronger credit quality and with whom they have established trading relationships. The strategic selections reflect a novel form of counterparty risk, as clients’ dependence on a small number of clearing agents can limit their ability to trade during periods of turmoil. We demonstrate that clients most reliant on Credit Suisse for clearing services were forced to reduce their centrally cleared positions when the dealer faced distress following the unexpected collapse of Archegos Capital Management. Together, our results show that central clearing reshapes the structure and competitive dynamics of financial markets and, in doing so, introduces new points of operational fragility.
Short-Circuiting Short-Term Funding with R. Jay Kahn, Neth Karunamuni
This paper examines the potential impact of cyber-induced operational outages in the U.S. repo market. Using transaction-level data and institutional cybersecurity ratings, we simulate disruptions to key cash lenders. Our findings indicate that outages at certain institutions can disrupt over $100 billion in funding and raise repo rates by over 50 basis points. The severity of these disruptions is sensitive to outage timing and duration, with peak settlement times and slower recoveries amplifying stress. The results underscore the importance of both cybersecurity preparedness and institutional resilience in limiting financial market disruption. By linking cyber risk to intraday funding dynamics and rate volatility, this study contributes to the financial stability and operational risk literature, offering a framework for assessing and mitigating cyber threats in core funding markets.
Treasury Tri-party Repo Pricing with Carlos Ramirez
The U.S. tri-party repurchase agreement (repo) market segment is a large over-the-counter venue critical for more than $2 trillion in daily funding and central bank open market operations. Using a confidential and comprehensive dataset, this paper examines the pricing of overnight tri-party repos, a key input to the U.S. Secured Overnight Financing Rate benchmark. Despite these transactions having negligible maturity, collateral, and counterparty risk, there is significant variation in the prices that market participants receive, which depend on (1) the number of counterparties they frequently trade with, (2) the degree of diversification across those counterparties, and (3) the share of trading activity those counterparties represent. Notably, during periods of market stress, these features can significantly alter the pricing impact experienced by borrowers.
Assessing the Safety of Central Counterparties with H. Peyton Young
A proposed framework for empirically assessing a central counterparty’s capacity to cope with severe financial stress. Using public disclosures data for global central counterparties (CCPs), we show how to estimate the probability that a CCP could cover any specified fraction of payment defaults by its members. This framework supplements conventional standards of risk management such as Cover 2 and provides a comparative and comprehensive approach to assessing risk protection across CCPs that is not predicated on a specific number of member defaults. We apply the approach to a wide range of CCPs in different geographical jurisdictions and asset classes and find that there are substantial differences in protection coverage. In particular, large European CCPs appear to be significantly safer than their counterparts in Asia-Pacific and North America. These differences are also reflected in supervisory data that provide CCP members' risk assessments of the CCPs to which they belong.
An Agent-based Model for Crisis Liquidity Dynamics with Richard Bookstaber
Financial crises are often characterized by sharp reductions in liquidity followed by cascades of falling prices. Researchers are making progress in work to understand the levels of liquidity on a daily basis, but understanding the vulnerability of liquidity to market shocks remains a challenge. We develop an agent-based model with the objective of evaluating the market dynamics that lead the market supply of liquidity to recede during periods of crisis. The model uses a limit-order-book framework to examine the interaction of three types of traditional market agents: liquidity demanders, liquidity suppliers, and market makers. The paper highlights the implications of changes in market makers' ability to provide intermediation services and the heterogeneous decision cycles of liquidity demanders versus liquidity suppliers for crisis-induced illiquidity.
[Code: Link ]
Intermediation Networks and Derivative Market Liquidity: Evidence from CDS Markets. (2026) Review of Finance. forthcoming. with Stathis Tompaidis
Dynamic Order Dispersion and Volatility Persistence in a Simple Limit Order Book Model. (2026) Journal of Economic Dynamics and Control. 188, 105334. with Andrew Hawley, Blake LeBaron, Nathan Palmer
Cross-Asset Tandem Trading and Extraordinary Volatility. (2024) Journal of Futures Markets. 44 (9), 1508-1542. with Robert Garrison, Pankaj Jain
Anatomy of the Repo Rate Spikes in September 2019. (2023) Journal of Financial Crisis. 5 (4), 1-25. with R. Jay Kahn, Matthew McCormick, Vy Nguyen, H. Peyton Young
Central Counterparty Default Waterfalls and Systemic Loss. (2023) Journal of Financial and Quantitative Analysis. 58 (8), 3577-3612. with Samim Ghamami, Simpson Zhang
Internet Appendix: Link
How Safe are Central Counterparties in Credit Default Swap Markets?. (2021) Mathematics and Financial Economics. 15 (1), 41-57. with H. Peyton Young.
Media Coverage: Securities Lending Times
Contagion in Derivatives Markets. (2020) Management Science. 66 (8), 3603-3616 . with Sriram Rajan, H. Peyton Young.
Media Coverage: Wall Street Journal Pro 1, Wall Street Journal Pro 2, Bloomberg Gadfly, SCI,
Interbank Contagion: An Agent-Based Model Approach to Endogenously Formed Networks. (2020) Journal of Banking and Finance. 112, 105191. with Anqi Liu, Steve Yang, Xingjia Zhang.
Media Coverage: Wall Street Journal Pro
Bank Networks and Systemic Risk: Evidence From the National Banking Acts. (2019) American Economic Review. 109 (9), 3125-3161. with Haelim Anderson, Jessie Jiaxu Wang.
Media Coverage: Wall Street Journal Pro
Internet Appendix: Link
An Agent-based Model for Financial Vulnerability. (2018) Journal of Economic Interaction and Coordination. 13(2), 433-465. with Richard Bookstaber, Brian Tivnan.
Media Coverage: Wall Street Journal
Code: please e-mail for code
Stressed to the Core: Counterparty Concentrations and Systemic Losses in CDS Markets. (2018) Journal of Financial Stability. 35, 38-52. with Jill Cetina, Sriram Rajan.
Media Coverage: Financial Times, Reuters, Value Walk, Financial Technology Forum
Effects of Limit Order Book Information Level on Market Stability Metrics. (2017) Journal of Economic Interaction and Coordination.12(2), 221-247. with Roy Hayes, William Scherer, Peter Beling.
Code: please e-mail for code
Visual Analysis to Support Regulators in Electronic Order Book Markets. (2016) Environment Systems and Decisions. 36(2), 167-182. with Richard Haynes, Andrew Todd, William Scherer, Peter Beling.
How Will Central Clearing Impact the Repo Market? (2026) Office of Financial Research Blog Series. with Ashlyn Cenicola, John Heilbron, Robert Mann
Are Zero-Haircut Repos as Common as Advertised? (2025) Office of Financial Research Blog Series. with Ashlyn Cenicola, Robert Mann
Repo Market Intermediation: Dealer Cash and Collateral Flow Management across the U.S. Repo Market (2024) Office of Financial Research Brief Series. with Samuel J. Hempel, R. Jay Kahn, Robert Mann
Why Is So Much Repo Not Centrally Cleared? (2023) Office of Financial Research Brief Series. with Samuel J. Hempel, R. Jay Kahn, Robert Mann
The Dynamics of the U.S. Overnight Triparty Repo Market (2021) Office of Financial Research Brief Series. with Carlos Ramirez, Matthew McCormick
Intraday Timing of General Collateral Repo Markets (2021) Liberty Street Economics. with Kevin Clark, Adam Copeland, R. Jay Kahn, Antoine Martin, Benjamin Taylor
Visualizations for Sense-making in Financial Market Regulation. (2013) IEEE International Conference on Big Data. with Richard Haynes, Andrew Todd, William Scherer, Peter Beling
Regulatory Management of Distressed Financial Markets. (2013) Winter Simulation Conference. with Gerard Learmouth
Revolutionizing Financial Engineering Education Simulation-Based Strategies for Learning. (2013) ASEE Annual Conference. with Matt Olfat, Roy Hayes, Kari Wold
A Study of Dark Pool Trading Using an Agent-Based Model. (2013) Computational Intelligence for Financial Engineering and Economics. with Kevin Mo, Steve Yang
Agent Based Model of the E-MINI Future Market: Applied to Policy Decisions. (2012) Winter Simulation Conference. with Roy Hayes, Andrew Todd, William Scherer, Peter Beling
An Agent Based Model of the E-Mini S&P500: Applied to the Flash Crash Analysis. (2012) Computational Intelligence for Financial Engineering and Economics. with Roy Hayes, Andrew Todd, Steve Yang, William Scherer, Peter Beling
[Paper Code: please e-mail for code, Volatile Market Code: please e-mail code for used in Mankad et. al. (2013)]
Behavior Based Learning in Identifying High Frequency Trading Strategies. (2012) Computational Intelligence for Financial Engineering and Economics. with Roy Hayes, Andrew Todd, Steve Yang, Andrei Kirilenko, William Scherer, Peter Beling
Strategies for Hedging and Trading in the Emerging Ethanol Commodities Market. (2008) IEEE Systems and Information Engineering Design Symposium, 295-300. with Ginger Davis