Amsterdam Center for Corporate Finance

new publication (NOVEMBER 2021)

PERSPECTIVES ON Central Clearing and Competition Policy

Topics in corporate finance Issue 29

With the 29th issue of the ACCF Topics in Corporate Finance series, the Amsterdam Center for Corporate Finance seeks to contribute to the public debate on two public policy issues that will play a key role in the years to come. One is related to the stability of the financial system, in particular the role of central clearing counterparties, the other deals with competition issues associated with the transition to a green economy and the use of algorithms. Central clearing counterparties (CCPs) have become mandatory for many interest-rate and credit derivatives following the 2007-09 financial crisis. Their (coming into) existence has a logic: the uncertainty in a world where investors are subject to counterparty risk (i.e. can they deliver, or might they default on their promises) contributed to the crisis. The CCPs are designed to insulate parties from this risk. As preeminent specialists in this area, Albert Menkveld (VU Amsterdam) and Guillaume Vuillemey (HEC Paris) discuss the precise role that CCPs play and insights from the extant literature that have developed, including regulatory implications.

Competition issues associated with the green economy are analyzed by Maarten Pieter Schinkel (University of Amsterdam), a leading authority in antitrust and competition economics, and Leonard Treuren a post-doctoral researcher at KU Leuven. While collaboration and relaxing competition rules are often suggested as ways to accommodate a transition to the green economy, the authors argue that the evidence may not support this premise. Green washing and government failure might be exacerbated. Incentives for sustainability might be stronger when firms compete than when they are allowed to make sustainability agreements.

Finally, Timo Klein and Gareth Shier, consultants at Oxera Consulting LLP, focus on competition issues associated with the increased use of algorithms in price setting. As example, the petrol station operators in Germany use algorithmic pricing software that helps them respond to changes in markets and consumer behavior. While this could improve the efficiency in price setting, it might also facilitate collusion and undermine competition. They discuss the adequacy of existing legal frameworks, and the implications for businesses.

As Amsterdam Center for Corporate Finance, we hope that you enjoy reading this contribution to the Topics in Corporate Finance series, and that it may help foster a healthy public debate on these important issues.