Mechanism Selection and Trade Formation on Swap Execution Facilities: Evidence from Index CDS Trades
UNIVERSITY OF TECHNOLOGY SYDNEY
Finance Discipline Group
Research Seminars in Finance
Topic: Mechanism Selection and Trade Formation on Swap Execution Facilities: Evidence from Index CDS Trades
Speaker: Haoxiang Zhu, MIT
Abstract: The Dodd-Frank Act mandates that certain standard OTC derivatives be traded on swap execution facilities (SEF). This paper provides a granular analysis of SEF trading mechanisms, using message-level data for May 2016 from the two largest customer-to-dealer SEFs in index CDS markets. Both SEFs offer customers various execution mechanisms that differ in how widely customers’ trading interests are exposed to dealers. A theoretical model shows that although exposing the order to more dealers increases competition, it also causes a more severe winner’s curse. Consistent with this trade-off, the data show that customers contact fewer dealers if the trade size is larger or nonstandard. Dealers are more likely to respond to customers’ inquiries if fewer dealers are involved in competition, if the notional size is larger, or if more dealers are making markets. Finally, dealers’ quoted spreads and customers’ transaction costs increase in notional quantity and the number of dealers involved. Our results contribute to the understanding of swaps markets by providing insights into investors’ and dealers’ revealed preferences and strategic behaviors.
A light lunch will be provided at 1p.m. Please RSVP for catering purposes to Mala Kapahi by 12 noon on Monday, 14th August.
Date: Wednesday, 16th August 2017
Time: 12.00 – 1.00 p.m.
Venue: University of Technology, Sydney
Building 8
Dr Chau Chak Wing Building
Dr Chau Chak Wing Building
14 - 28 Ultimo Road, Ultimo
Co-ordinator: Adrian Lee (Ph: +61 2 9514 7765)
Enquiries: Mala Kapahi (Ph: +61 2 9514 7777)
