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A Theory of Participation in OTC and Centralized Markets

hal.structure.identifierDauphine Recherches en Management [DRM]
dc.contributor.authorDugast, Jérôme
dc.contributor.authorWeill, Pierre-Olivier
dc.contributor.authorÜslü, Semih
dc.date.accessioned2021-09-14T15:48:44Z
dc.date.available2021-09-14T15:48:44Z
dc.date.issued2019
dc.identifier.urihttps://basepub.dauphine.psl.eu/handle/123456789/21773
dc.language.isoenen
dc.subjectOTC Marketsen
dc.subjectHeterogeneityen
dc.subjectIntermediationen
dc.subjectComposition Externalitiesen
dc.subjectGovernment Interventionen
dc.subject.ddc332.6en
dc.subject.classificationjelG.G1.G12en
dc.subject.classificationjelG.G1.G15en
dc.titleA Theory of Participation in OTC and Centralized Marketsen
dc.typeCommunication / Conférence
dc.description.abstractenShould regulators encourage the migration of trade from over-the-counter (OTC) to centralized markets? To address this question, we consider a model of equilibrium and socially optimal market participation of heterogeneous banks in an OTC market, in a centralized market, or in both markets at the same time. We find that banks have the strongest private incentives to participate in the OTC market if they have the lowest risk-sharing needs and highest ability to take large positions. These banks endogenously assume the role of OTC market dealers. Other banks, with relatively higher risk-sharing needs and lower ability to take large positions, lie at the margin: they are indifferent between the centralized market and the OTC market, where they endogenously assume the role of customers. We show that more customer bank participation in the centralized market can be welfare improving only if banks are mostly heterogeneous in their ability to take large positions in the OTC market, and if participation costs induce banks to trade exclusively in one market. Empirical evidence suggests that these conditions for a welfare improvement are met.en
dc.subject.ddclabelMarchés financiersen
dc.relation.conftitleBanque de France-ESSEC 2nd Workshop on OTC Markets: Recent Advances in Researchen
dc.relation.confdate2019-05
dc.relation.confcityParisen
dc.relation.confcountryFranceen
dc.relation.forthcomingnonen
dc.description.ssrncandidatenon
dc.description.halcandidateouien
dc.description.readershiprechercheen
dc.description.audienceInternationalen
dc.relation.Isversionofjnlpeerreviewednonen
dc.date.updated2021-09-14T15:00:00Z
dc.subject.classificationjelHALG - Financial Economics::G1 - General Financial Markets::G12 - Asset Pricing; Trading Volume; Bond Interest Ratesen
dc.subject.classificationjelHALG - Financial Economics::G1 - General Financial Markets::G15 - International Financial Marketsen
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