Does Dodd-Frank Affect OTC Transaction Costs and Liquidity? Evidence from Real-Time CDS Trade Reports

62 Pages Posted: 31 May 2014 Last revised: 24 Sep 2015

See all articles by Yee Cheng Loon

Yee Cheng Loon

Securities and Exchange Commission (SEC)

Zhaodong Zhong

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick

Date Written: June 29, 2015

Abstract

This paper examines transaction costs and liquidity in the index CDS market by matching intraday quotes to real-time trade reports made available through the Dodd-Frank reforms. We find that the average relative effective spread is 0.27% of price level or 2.73% of CDS spread. Dodd-Frank does affect transaction costs and liquidity. Liquidity improves after the commencement of public dissemination of OTC derivatives trades. Moreover, cleared trades, trades executed on exchange-like venues, end-user trades, and bespoke trades exhibit lower trading costs, price impact, and price dispersion. These findings improve our understanding of the OTC derivatives market that is undergoing fundamental changes.

Keywords: Dodd-Frank Act, Over-the-Counter Markets, Liquidity, Real-Time Trade Reporting, Credit Default Swaps

JEL Classification: G12, G13, G14, G18, G28

Suggested Citation

Loon, Yee Cheng and Zhong, Zhaodong, Does Dodd-Frank Affect OTC Transaction Costs and Liquidity? Evidence from Real-Time CDS Trade Reports (June 29, 2015). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2443654 or http://dx.doi.org/10.2139/ssrn.2443654

Yee Cheng Loon

Securities and Exchange Commission (SEC) ( email )

100 F Street NE
Washington, DC 20549
United States

Zhaodong Zhong (Contact Author)

Rutgers, The State University of New Jersey - Rutgers Business School at Newark & New Brunswick ( email )

Department of Finance, Rutgers Business School
100 Rockafeller Road
Piscataway, NJ 08854
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
723
Abstract Views
2,397
rank
33,758
PlumX Metrics