Journal of Financial and Quantitative Analysis Vol. 55 No. 1 2020

Centralized Trading, Transparency, and Interest Rate Swap Market Liquidity: Evidence from the Implementation of the Dodd–Frank Act

Evangelos Benos^1,2,3; Richard Payne^1,2,3; Michalis Vasios^1,2,3

¹ City, University of London · ² University of St.Gallen · ³ University of Gothenburg

Abstract

We use proprietary transaction data on interest rate swaps to assess the effects of centralized trading, as mandated by Dodd–Frank, on market quality. Contracts with the most extensive centralized trading see liquidity metrics improve by between 12% and 19% relative to those of a control group. This is driven by a clear increase in competition between dealers, particularly in U.S. markets. Additionally, centralized trading has caused interdealer trading in EUR swap markets to migrate from the United States to Europe. This is consistent with swap dealers attempting to avoid being captured by the trade mandate in order to maintain market power.

DOI

10.1017/s0022109018001527

Volume

55

Issue

1

Pages

159-192

Language

en

Sources

bibtex:phds-export.bib openalex crossref

Cite

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