Swap trading after Dodd-Frank: Evidence from index CDS
Name
SSRN-id3047284.pdf
Description
Accepted version
Size
1.2 MB
Format
Adobe PDF
Checksum (MD5)
951820ec5624ae6da75066d68c66d8d5
Author(s)
Zhu, Haoxiang
Date Issued
September 2020
Journal
Journal of Financial Economics
Publisher
Elsevier BV
Citation
Riggs, Lynn et al. “Swap trading after Dodd-Frank: Evidence from index CDS.” Journal of Financial Economics, 137, 3 (September 2020): 857-886 © 2020 The Author(s)
Version
Author's final manuscript
Abstract
The Dodd-Frank Act mandates that certain standard over-the-counter (OTC) derivatives must be traded on swap execution facilities (SEFs). Using message-level data, we provide a granular analysis of dealers’ and customers’ trading behavior on the two largest dealer-to-customer SEFs for index credit default swaps (CDS). On average, a typical customer contacts few dealers when seeking liquidity. A theoretical model shows that the benefit of competition through wider order exposure is mitigated by a winner's curse problem and dealer-customer relationships. Consistent with the model, we find that order size, market conditions, and customer-dealer relationships are important empirical determinants of customers’ choice of trading mechanism and dealers’ liquidity provision.
MIT Department
Sloan School of Management
Terms of Use
Creative Commons Attribution-NonCommercial-NoDerivs License
Persistent DSpace Link
DOI of Published Version
https://doi.org/10.1016/J.JFINECO.2020.03.008
