CCP Competition, Margins, and Crowding in US Treasury Market

Abstract

This paper presents a dynamic equilibrium model of US Treasury clearing that endogenizes explicit, VaR-based initial margins, EWMA volatility updates, variation-margin feedback, cross-margining, and crowding effects within CCP competition. We cast clearing as a three-stage stochastic game: CCPs commit to fees, margin multipliers, cross-margin discounts, and volatility-decay parameters; members allocate DV01 exposures in each period subject to funding-cost feedback from margin calls; and CCPs incur tail-risk, covariance, concentration, and infrastructure penalties over time. In the symmetric competitive equilibrium, stronger cross-margining discounts, dynamically calibrated skin-in-the-game buffers, concentration surcharges, and conservative margin-and-volatility regimes all reduce the joint default probability. We benchmark against a single-CCP monopoly and demonstrate that only under extreme crowding does a well-capitalized monopoly dominate. Our comparative-statics yield a comprehensive policy toolkit—transparent margin formulas, volatility-decay standards, feedback-cap mechanisms, cross-margin interoperability, and real-time crowding metrics—to guide resilient Treasury clearing.