IDEAS home Printed from https://ideas.repec.org/a/cup/jfinqa/v55y2020i1p159-192_5.html
   My bibliography  Save this article

Centralized Trading, Transparency, and Interest Rate Swap Market Liquidity: Evidence from the Implementation of the Dodd–Frank Act

Author

Listed:
  • Benos, Evangelos
  • Payne, Richard
  • Vasios, Michalis

Abstract

We use proprietary transaction data on interest rate swaps to assess the effects of centralized trading, as mandated by Dodd–Frank, on market quality. Contracts with the most extensive centralized trading see liquidity metrics improve by between 12% and 19% relative to those of a control group. This is driven by a clear increase in competition between dealers, particularly in U.S. markets. Additionally, centralized trading has caused interdealer trading in EUR swap markets to migrate from the United States to Europe. This is consistent with swap dealers attempting to avoid being captured by the trade mandate in order to maintain market power.

Suggested Citation

  • Benos, Evangelos & Payne, Richard & Vasios, Michalis, 2020. "Centralized Trading, Transparency, and Interest Rate Swap Market Liquidity: Evidence from the Implementation of the Dodd–Frank Act," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 55(1), pages 159-192, February.
    • Handle: RePEc:cup:jfinqa:v:55:y:2020:i:1:p:159-192_5
    as

    Download full text from publisher

    File URL: https://www.cambridge.org/core/product/identifier/S0022109018001527/type/journal_article
    File Function: link to article abstract page
    Download Restriction: no
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Harald Hau & Peter Hoffmann & Sam Langfield & Yannick Timmer, 2021. "Discriminatory Pricing of Over-the-Counter Derivatives," Management Science, INFORMS, vol. 67(11), pages 6660-6677, November.
    2. Joseph, Andreas & Vasios, Michalis, 2022. "OTC Microstructure in a period of stress: A Multi-layered network approach," Journal of Banking & Finance, Elsevier, vol. 138(C).
    3. Aquilina, Matteo & Ibikunle, Gbenga & Mollica, Vito & Steffen, Tom, 2022. "The visible hand: benchmarks, regulation, and liquidity," Journal of Financial Markets, Elsevier, vol. 61(C).
    4. Riggs, Lynn & Onur, Esen & Reiffen, David & Zhu, Haoxiang, 2020. "Swap trading after Dodd-Frank: Evidence from index CDS," Journal of Financial Economics, Elsevier, vol. 137(3), pages 857-886.
    5. Wenqian Huang & Albert J. Menkveld & Shihao Yu, 2021. "Central Counterparty Exposure in Stressed Markets," Management Science, INFORMS, vol. 67(6), pages 3596-3617, June.
    6. Jason Allen & Milena Wittwer, 2023. "Centralizing Over-the-Counter Markets?," Journal of Political Economy, University of Chicago Press, vol. 131(12), pages 3310-3351.
    7. Lannoo, Karel & Thomadakis, Apostolos, 2020. "Derivatives in Sustainable Finance," ECMI Papers 29791, Centre for European Policy Studies.
    8. Sah, Nilesh B. & Banerjee, Anandi & Malm, James & More, Deepak G., 2022. "A risky affair: Dual class and FX hedging," Finance Research Letters, Elsevier, vol. 47(PA).
    9. Pierre Collin‐Dufresne & Benjamin Junge & Anders B. Trolle, 2020. "Market Structure and Transaction Costs of Index CDSs," Journal of Finance, American Finance Association, vol. 75(5), pages 2719-2763, October.
    10. Alain P. Chaboud & Caren Cox & Michael J. Fleming & Ellen Correia Golay & Yesol Huh & Frank M. Keane & Kyle Lee & Krista B. Schwarz & Clara Vega & Carolyn Windover, 2022. "All-to-All Trading in the U.S. Treasury Market," Staff Reports 1036, Federal Reserve Bank of New York.
    11. Zhao, Chen & Li, Yubin & Govindaraj, Suresh & Zhong, Zhaodong (Ken), 2022. "CDS trading and analyst optimism," The British Accounting Review, Elsevier, vol. 54(4).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cup:jfinqa:v:55:y:2020:i:1:p:159-192_5. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kirk Stebbing (email available below). General contact details of provider: https://www.cambridge.org/jfq .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.