Transparency and Dealer Networks: Evidence from the Initiation of Post-Trade Reporting in the Mortgage Backed Security Market

49 Pages Posted: 31 Oct 2017 Last revised: 5 May 2018

See all articles by Paul Schultz

Paul Schultz

University of Notre Dame

Zhaogang Song

Johns Hopkins University - Carey Business School

Date Written: April 27, 2018

Abstract

We examine the introduction of mandatory post-trade reporting in the TBA mortgage-backed securities market. With post-trade reporting, trading costs fell for institutional investors. Trading costs declined more for investors’ trades with peripheral dealers than for their trades with core dealers. Peripheral dealers’ market share dropped after the introduction of post-trade reporting, suggesting that opacity was protecting inefficient high-cost dealers. Interdealer trades and volume dropped as transparency made it easier to find natural counterparties. Relationships between dealers became less important and, after controlling for the number of trades, dealers used more counterparties in interdealer trades.

Keywords: mortgage backed securities, dealer networks, transparency, trade reporting

JEL Classification: G00, G18, G23, G28

Suggested Citation

Schultz, Paul and Song, Zhaogang, Transparency and Dealer Networks: Evidence from the Initiation of Post-Trade Reporting in the Mortgage Backed Security Market (April 27, 2018). Available at SSRN: https://ssrn.com/abstract=3062168 or http://dx.doi.org/10.2139/ssrn.3062168

Paul Schultz (Contact Author)

University of Notre Dame ( email )

361 Mendoza College of Business
Notre Dame, IN 46556-5646
United States

Zhaogang Song

Johns Hopkins University - Carey Business School ( email )

100 International Drive
Baltimore, MD 21202
United States

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