The Potential Impact of Broader Central Clearing on Dealer Balance Sheet Capacity : A Case Study of UK Gilt and Gilt Repo Markets

More widespread central clearing could enhance dealers’ ability to intermediate financial markets by increasing the netting of buy and sell trades, thereby reducing the impact of trading on balance sheets and capital ratios. Drawing on trade‑level regulatory data, we study the netting benefits for UK dealers if comprehensive central clearing had been introduced to the cash gilt and gilt repo markets ahead of the March 2020 dash for cash (DFC) crisis. For the gilt repo market, we estimate that the policy would have reduced the gilt repo exposures on UK dealers’ balance sheets by 40% and, hence, boosted their aggregate leverage ratio by 3 basis points