Swap trading after Dodd-Frank: Evidence from index CDS
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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.
DepartmentSloan School of Management
Journal of Financial Economics
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)
Author's final manuscript