How Fast Should Trades Settle?

• 成果类型: Article
• 署名作者: Khapko, Mariana; Zoican, Marius
• 署名单位: University of Toronto; University Toronto Scarborough; University of Toronto; University Toronto Mississauga
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2019.3408
• 发表日期: 2020
• 页码: 4573-4593
• 关键词: Market design; trade settlement; security lending; COUNTERPARTY RISK

摘要

Recent regulatory and industry initiatives aim to streamline post-trade infrastructures. Does faster settlement benefit markets? We build a model of intermediated trading with imperfectly competitive securities lending. Faster settlement benefits impatient traders but increases borrowing needs. We find that flexible failure-to-deliver penalties reduce this tension, disciplining security lender competition and allowing for real-time settlement. Optimal penalties resemble put options on the lending market: they protect traders against high settlement costs but do not eliminate failures to deliver. Mandating automatic security borrowing to prevent failures to deliver triggers a toxic settlement rat race to lock in low borrowing costs.