How does standardization affect OTC markets in the long term? Evidence from the small bang reform in the CDS market

IF 5.4 2区 经济学 Q1 BUSINESS, FINANCE
Radu-Dragomir Manac, Chiara Banti, Neil Kellard
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Abstract

Focusing on the most liquid segment of the European CDS market, this paper studies the impact of a key standardization reform, known as the CDS Small Bang. We document that the reform provided unexpected long-term consequences. Particularly, we show that the introduction of an upfront fee to standardize the cash flow of CDS contracts created an initial capital cost for traders, which acts as a friction that increases CDS prices. This relation holds after accounting for well-known determinants of spreads, suggesting a separate funding channel driven by the greater capital intensity of trading. This effect grows in magnitude for several years following the implementation of the reform, becomes stronger when dealers are likely to bear the initial capital cost and is present across all industries, except for swaps written on financials shortly after the reform was introduced.

标准化如何长期影响场外交易市场?来自 CDS 市场小爆炸改革的证据
本文以欧洲 CDS 市场中流动性最强的部分为重点,研究了被称为 "CDS 小爆炸 "的关键标准化改革的影响。我们发现,改革带来了意想不到的长期后果。特别是,我们发现,为规范 CDS 合同的现金流而引入的预付费为交易者带来了初始资本成本,而这又成为了提高 CDS 价格的摩擦因素。在考虑了众所周知的利差决定因素后,这种关系依然存在,这表明交易的资本密集度增加驱动了一个独立的融资渠道。这种效应在改革实施后的几年内不断扩大,在交易商有可能承担初始资本成本时变得更加强烈,并且存在于所有行业,但改革实施后不久的金融掉期除外。
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来源期刊
CiteScore
6.60
自引率
10.00%
发文量
142
期刊介绍: International trade, financing and investments, and the related cash and credit transactions, have grown at an extremely rapid pace in recent years. The international monetary system has continued to evolve to accommodate the need for foreign-currency denominated transactions and in the process has provided opportunities for its ongoing observation and study. The purpose of the Journal of International Financial Markets, Institutions & Money is to publish rigorous, original articles dealing with the international aspects of financial markets, institutions and money. Theoretical/conceptual and empirical papers providing meaningful insights into the subject areas will be considered. The following topic areas, although not exhaustive, are representative of the coverage in this Journal. • International financial markets • International securities markets • Foreign exchange markets • Eurocurrency markets • International syndications • Term structures of Eurocurrency rates • Determination of exchange rates • Information, speculation and parity • Forward rates and swaps • International payment mechanisms • International commercial banking; • International investment banking • Central bank intervention • International monetary systems • Balance of payments.
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