IDEAS home Printed from https://ideas.repec.org/p/brd/wpaper/118.html
   My bibliography  Save this paper

Shrouding and the Foreign Exchange Trades of Global Custody Banks

Author

Listed:
  • Carol Osler

    () (Brandeis University)

  • Tanseli Savaser

    () (Vassar College)

Abstract

Custodial forex trades generally have far higher bid-ask spreads than regular OTC trades. We develop a model of custodial liquidity provision and test it using trade records from a global custody bank. Custodial dealers set high markups and “shroud” them by exploiting their clients’ limited access to information. Market opacity becomes endogenous as custodial dealers benchmark prices to the day’s high or low (as relevant) rather than the currency’s true value. A predicted kink in the relation between client price and the interbank price is evident in scatterplots and confirmed by regressions. Custodial dealers also shroud by delaying trades.

Suggested Citation

  • Carol Osler & Tanseli Savaser, 2018. "Shrouding and the Foreign Exchange Trades of Global Custody Banks," Working Papers 118, Brandeis University, Department of Economics and International Businesss School.
  • Handle: RePEc:brd:wpaper:118
    as

    Download full text from publisher

    File URL: http://www.brandeis.edu/economics/RePEc/brd/doc/Brandeis_WP118.pdf
    Download Restriction: no

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:brd:wpaper:118. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Eliza Dumais). General contact details of provider: http://edirc.repec.org/data/gsbraus.html .

    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 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.

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

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.