Transparency Regime Initiatives and Liquidity in the CDS Market

52 Pages Posted: 18 Jan 2015 Last revised: 24 Feb 2017

See all articles by Andras Fulop

Andras Fulop

ESSEC Business School

Laurence Lescourret

ESSEC Business School

Date Written: February 23, 2017

Abstract

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

Fulop, Andras and Lescourret, Laurence, Transparency Regime Initiatives and Liquidity in the CDS Market (February 23, 2017). Available at SSRN: https://ssrn.com/abstract=2551169 or http://dx.doi.org/10.2139/ssrn.2551169

Andras Fulop

ESSEC Business School ( email )

3 Avenue Bernard Hirsch
CS 50105 CERGY
CERGY, CERGY PONTOISE CEDEX 95021
France

HOME PAGE: http://www.andrasfulop.com

Laurence Lescourret (Contact Author)

ESSEC Business School ( email )

3 Avenue Bernard Hirsch
CS 50105 CERGY
CERGY, CERGY PONTOISE CEDEX
France
+33 1 34 43 33 62 (Phone)
+33 1 34 43 32 12 (Fax)

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