Fragmentation is a killer for efficiency

Fragmentation is a killer for efficiency.

BIS Working Paper 826 quantified the deadweight cost of clearing fragmentation in IRS markets at $80 million per day. That actually can be translated to approximately $20 billion per year in inefficiency, because this isn’t just rolled assets. It is primarily generated by product-siloed clearing, captured as higher margin requirements than a single multi-asset clearing venue would produce.

Duffie and Zhu modelled this mathematically in 2011: clearing silos multiply margin requirements rather than netting them. A portfolio with long IRS exposure and offsetting short positions in other products, cleared at two separate CCPs, produces nearly double the initial margin of the same portfolio cleared through a single CCP that nets across both positions.

The $400 trillion in uncleared OTC notional globally is the size of the problem that IRS clearing has not yet reached. LCH SwapClear established dominant market share in IRS clearing, enabling enough netting concentration to partially address the fragmentation cost within that product class. Though with about 1/3rd unaddressed.

The cross-asset fragmentation cost that spans crypto derivatives is even bigger which is crazy given the market is about one-tenth the size.

The commercial case for multi-asset clearing is the difference between the current fragmented capital cost and the netting benefit that universal clearing produces. That number is quantifiable from public data.

At what level of the organisation are banks currently running this netting analysis internally? Which crypto entities are trying to tackle this with a horizontal solution across different entities? What does QCCP mean and why is it important.

This first appeared on LinkedIn on 23 April 2026. If you want to comment or discuss, that’s the place.