Dealers' insurance, market structure, and liquidity

• 成果类型: Article
• 署名作者: Carapella, Francesca; Monnet, Cyril
• 署名单位: Federal Reserve System - USA; Federal Reserve System Board of Governors; Study Center Gerzensee; Bank for International Settlements (BIS); University of Bern
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2020.06.013
• 发表日期: 2020
• 页码: 725-753
• 关键词: liquidity; Dealers; insurance; central counterparties

摘要

We develop a parsimonious model to study the effect of regulations aimed at reducing counterparty risk on the structure of over-the-counter securities markets. We find that such regulations promote entry of dealers, thus fostering competition and lowering spreads. Greater competition, however, has an indirect negative effect on market-making profitability. General equilibrium effects imply that more competition can distort incentives of all dealers to invest in efficient technologies ex ante and so can cause a social welfare loss. Our results are consistent with empirical findings on the effects of post-crisis regulations and with the opposition of some market participants to those regulations. (C) 2020 Elsevier B.V. All rights reserved.