Transparency Regime Initiatives and Liquidity in the CDS Market
52 Pages Posted: 18 Jan 2015 Last revised: 24 Feb 2017
Date Written: February 23, 2017
This paper investigates liquidity changes in the corporate CDS market around two events that increased market transparency in the midst of the financial crisis: the regular dissemination of post-trade data by DTCC starting November 2008, and the implementation of the Small Bang in June 2009. We build an econometric model based on intra-daily bid and ask quotes to measure liquidity and volatility in thinly traded CDS. We find that, after DTCC's release, the market-wide deterioration in CDS liquidity becomes less important for banks and major dealers, consistent with information revelation on counterparty risk. The Small Bang also improved liquidity, particularly for more illiquid CDS.
Keywords: Credit Default Swap, Liquidity, Transparency, CDS Volatility, Counterparty Risk
JEL Classification: C51, G14, G18
Suggested Citation: Suggested Citation