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

Benos, Evangelos; Payne, Richard; Vasios, Michalis

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Authors

EVANGELOS BENOS Evangelos.Benos@nottingham.ac.uk
Chair in Finance, risk and Banking

Richard Payne

Michalis Vasios



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 US markets. Additionally, centralized trading has caused inter-dealer trading in EUR swap markets to migrate from the US to Europe. This is consistent with swap dealers attempting to avoid being captured by the trade mandate in order to maintain market power.

Citation

Benos, E., Payne, R., & Vasios, M. (2020). Centralized Trading, Transparency, and Interest Rate Swap Market Liquidity: Evidence from the Implementation of the Dodd–Frank Act. Journal of Financial and Quantitative Analysis, 55(1), 159-192. https://doi.org/10.1017/S0022109018001527

Journal Article Type Article
Acceptance Date Aug 18, 2018
Online Publication Date Dec 3, 2018
Publication Date 2020-02
Deposit Date Apr 23, 2020
Publicly Available Date Mar 29, 2024
Journal Journal of Financial and Quantitative Analysis
Print ISSN 0022-1090
Electronic ISSN 1756-6916
Publisher Cambridge University Press (CUP)
Peer Reviewed Peer Reviewed
Volume 55
Issue 1
Pages 159-192
DOI https://doi.org/10.1017/S0022109018001527
Keywords Economics and Econometrics; Accounting; Finance
Public URL https://nottingham-repository.worktribe.com/output/4329827
Publisher URL https://www.cambridge.org/core/journals/journal-of-financial-and-quantitative-analysis/article/centralized-trading-transparency-and-interest-rate-swap-market-liquidity-evidence-from-the-implementation-of-the-doddfrank-act/C2032B8471AB30FEB1FE57122E226648

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