novating trades implements efficient trading behaviour. It is optimal for the CCP to face default losses to achieve the … efficient level of trade. To cover these losses, the CCP optimally uses margin calls, and, as the default problem becomes more … severe, also requires default funds and then imposes position limits. …

as a firm)-collateral requirements are lower and default occurs. The experimental outcomes are in line with the theory …'s main predictions. The type of collateral, whether financial or not, matters. Default rates and loss from default are higher … when the risky asset is nonfinancial, stemming from laxer collateral requirements. Default rates and collateral …