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"Smart" Settlement

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Date
2017
Link to item file
https://papers.ssrn.com/sol3/papers2.cfm?abstract_id=2881331
Dewey
Marketing
Sujet
Market design; trade settlement, blockchain; vertical differentiation; D43; D47; G10; G12
JEL code
G.G1.G12; G.G1.G10; D.D4.D47; D.D4.D43
Conference name
SFS Cavalcade North America
Conference date
05-2017
Conference city
Nashville
Conference country
Canada
URI
https://basepub.dauphine.fr/handle/123456789/16378
Collections
  • DRM : Publications
Metadata
Show full item record
Author
Khapko, Mariana
status unknown
Zoican, Marius Andrei
1032 Dauphine Recherches en Management [DRM]
Type
Communication / Conférence
Abstract (EN)
Blockchain technology allows for flexible settlement of trades. We build a model of intermediated trading with search frictions and counterparty risk. On the one hand, longer trade-to-settlement time increases counterparty risk exposure. On the other hand, liquidity improves since intermediaries have more time to adjust inventories. Optimal time-to-settlement decreases in counterparty risk and search intensity. However, with flexible time-to-settlement intermediaries specialize in either high- or low-default risk contracts. Consequently, price competition is relaxed. Intermediaries earn rents, increasing in their (common) default rate due to larger scope for specialization. A unique time-to-settlement for all trades in a given security improves welfare.

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