IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/28764.html

Regulation and Security Design in Concentrated Markets

Author

Listed:
  • Ana Babus
  • Kinda Cheryl Hachem

Abstract

Regulatory debates about centralized trading assume security design is immune to market structure. We consider a regulator who introduces an exchange to increase liquidity, understanding that security design is endogenous. For a given security, investors would like to trade in a larger market and, for a given market structure, they would like to trade a safer security. We show that financial intermediaries design riskier securities after the exchange is introduced, even when the exchange leads to the origination of safer underlying assets. The results reflect a relative dilution of investor market power and motivate coordinated policies to improve investor welfare.

Suggested Citation

  • Ana Babus & Kinda Cheryl Hachem, 2021. "Regulation and Security Design in Concentrated Markets," NBER Working Papers 28764, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:28764
    Note: AP CF ME
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w28764.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    Citations

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


    Cited by:

    1. Allen, Franklin & Barbalau, Adelina, 2024. "Security design: A review," Journal of Financial Intermediation, Elsevier, vol. 60(C).
    2. Babus, Ana & Hachem, Kinda, 2023. "Markets for financial innovation," Journal of Economic Theory, Elsevier, vol. 208(C).
    3. Rostek, Marzena, 2021. "Comments on “Regulation and security design in concentrated markets” by A. Babus and K. Hachem (2021)," Journal of Monetary Economics, Elsevier, vol. 121(C), pages 152-154.

    More about this item

    JEL classification:

    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

    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:nbr:nberwo:28764. 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: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    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.