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Abstract

We use proprietary transaction data on interest rate swaps to assess the effects of centralized trading, as mandated by Dodd{Frank, on market quality. Contracts with the most extensive centralized trading see liquidity metrics improve by between 12% and 19% relative to those of a control group. This is driven by a clear increase in competition between dealers, particularly in U.S. markets. Additionally, centralized trading has caused interdealer trading in EUR swap markets to migrate from the United States to Europe. This is consistent with swap dealers attempting to avoid being captured by the trade mandate in order to maintain market power.

Publication Type:	Article
Additional Information:	This article is published in a revised form in Journal of Financial and Quantitative Analysis,https://doi.org/10.1017/S0022109018001527. This version is free to view and download for private research and study only. Not for re-distribution, re-sale or use in derivative works. © Cambridge University Press, © Michael G. Foster School of Business, University of Washington 2020.
Publisher Keywords:	Interest Rate Swaps; Pre-trade Transparency; Market Power; Liquidity; Swap Execution Facilities
Subjects:	H Social Sciences > HF Commerce H Social Sciences > HG Finance
Departments:	Bayes Business School > Finance
SWORD Depositor:	Symplectic Administrator

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