Compressing Over-the-Counter Markets
Over-the-counter markets are at the center of the postcrisis global reform of the financial system. We show how the size and structure of such markets can undergo rapid and extensive changes when participants engage in portfolio compression, a post-trade netting technology. Tightly-knit and concentrated trading structures, as featured by many large over-the-counter markets, are especially susceptible to reductions of notional and reconfigurations of network structure resulting from compression activities. Using transaction-level data on credit-default-swaps markets, we estimate reduction levels consistent with the historical development observed in these markets since the Global Financial Crisis. Finally, we study the effect of a mandate to centrally clear over-the-counter markets. When participants engage in both central clearing and portfolio compression, we find large netting failures if clearinghouses proliferate. Allowing for compression across clearinghouses by-and-large offsets this adverse effect.
Code (0)
등록된 구현이 없습니다.
Similar Papers 제목 키워드 기반
Causal Regime Detection in Energy Markets With Augmented Time Series Structural Causal Models
Energy markets exhibit complex causal relationships between weather patterns, generation technologies, and price formation, with regime changes occurring continuously rather than at discrete break points. Current approac…
Predicting the Behavior of Dealers in Over-The-Counter Corporate Bond Markets
Trading in Over-The-Counter (OTC) markets is facilitated by broker-dealers, in comparison to public exchanges, e.g., the New York Stock Exchange (NYSE). Dealers play an important role in stabilizing prices and providing …
ClusteringStability of Utility Maximization in Nonequivalent Markets
Stability of the utility maximization problem with random endowment and indifference prices is studied for a sequence of financial markets in an incomplete Brownian setting. Our novelty lies in the nonequivalence of mark…
Liquidity Dynamics in RFQ Markets and Impact on Pricing
To assign a value to a portfolio, it is common to use Mark-to-Market prices. However, how should one proceed when the securities are illiquid? When transaction prices are scarce, how can one use all the available real-ti…
From small markets to big markets
We study the most famous example of a large financial market: the Arbitrage Pricing Model, where investors can trade in a one-period setting with countably many assets admitting a factor structure. We consider the proble…