← Search

Journal of Finance Vol. 75 No. 5 2020

Market Structure and Transaction Costs of Index CDSs

Pierre Collin-Dufresne1,2; BENJAMIN JUNGE3; Anders B. Trolle4,5,6

1 École Polytechnique Fédérale de Lausanne · 2 Swiss Finance Institute · 3 Capital Fund Management (France) · 4 Department of Finance · 5 HEC Paris · 6 Pierre Collin-Dufresne is at EPFL and Swiss Finance Institute. Benjamin Junge is at Capital Fund Management. Anders B. Trolle is at HEC Paris and Copenhagen Business School. We thank Stefan Nagel (the Editor), two anonymous referees, Bruno Biais, Darrell Duffie, Thierry Foucault, Larry Glosten, Mich

open access

Abstract

Despite regulatory efforts to promote all-to-all trading, the post–Dodd-Frank index credit default swap market remains two-tiered. Transaction costs are higher for dealer-to-client than interdealer trades, but the difference is explained by the higher, largely permanent, price impact of client trades. Most interdealer trades are liquidity motivated and executed via low-cost, low-immediacy trading protocols. Dealer-to-client trades are nonanonymous; they almost always improve upon contemporaneous executable interdealer quotes, and dealers appear to price discriminate based on the perceived price impact of trades. Our results suggest that the market structure is a consequence of the characteristics of client trades: relatively infrequent, large, and differentially informed.

DOI
10.1111/jofi.12953
Volume
75
Issue
5
Pages
2719-2763
Language
en
Sources
bibtex:phds-export.bib openalex openalex crossref

Cite