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Swap trading after Dodd-Frank: Evidence from index CDS

Author(s)
Zhu, Haoxiang
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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.
Date issued
2020-09
URI
https://hdl.handle.net/1721.1/130359
Department
Sloan School of Management
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
ISSN
0304-405X

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