Swap trading after Dodd-Frank: Evidence from index CDS

OTC Discount

“…Studying the market for index CDS, Riggs, Onur, Rei↵en and Zhu (2020) focus on the strategic choices of dealers and customers in trading via RFQ or request-for-streaming protocols, whereas Collin-Dufresne, Junge and Trolle (2020) report that in the interdealer segment low-cost, low-immediacy protocols are preferred to trading in a limit order book.…”

Centralizing Over-the-Counter Markets?

“…We believe that this is not problematic for two reasons. First, empirical evidence suggests that trades of safe assets rarely fail (e.g., Riggs et al (2020); Hendershott et al (2020b)). Second, (primary) dealers have an obligation to actively trade: The least active dealer trades on 98% of dates.…”

“…Our main contribution is to empirically assess price and welfare effects when OTC markets are centralized. Therefore, we add to relatively few studies that touch on the centralization of financial markets via reduced-form analysis (e.g., Barklay et al (2006); Loon and Zhong (2016); Fleming et al (2017); Abudy and Wohl (2018); Biais and Green (2019); Benos et al (2020); Riggs et al (2020); O'Hara and Zhou ( 2021)). Among them, the most closely related papers are Plante (2017) and Hendershott and Madhavan (2015) (HM).…”

“…Shifting bilateral trading onto an exchange (limit order book) is likely infeasible in the medium run, because regulators are reluctant to severely disturb the market. Further, empirical evidence suggests that investors might prefer auctions with dealers over limit order books (e.g.,Riggs et al (2020)). …”

Discriminatory Pricing of Over-the-Counter Derivatives

“…See "Monarch Airlines goes bust", Reuters, October 2, 2017, available at: https://goo.gl/YR7Q7P. 4 Extensions of this canonical search model include Duffie, Gârleanu & Pedersen (2007) and Lagos & Rocheteau (2007 quality for platform trades have recently been obtained in markets for interest rate and index credit default swaps (Benos, Payne & Vasios, 2019;Riggs, Onur, Reiffen & Zhu, 2018). We advance this emerging literature on platform trading by studying the heterogeneous effects of venue choice in the cross-section of clients.…”