Price Transparency in OTC Equity Lending Markets: Evidence From a Loan Fee Benchmark
63 Pages Posted: 27 Mar 2020 Last revised: 11 May 2021
Date Written: January 15, 2021
We study the effects of a price transparency shock in the Brazilian equity lending market, an over-the-counter market. Previously, the available loan fee benchmark was the mean loan fee of the past 15 trading days. On March 1, 2011, this interval was reduced to 3 days, significantly improving short-sellers' ability to predict current loan fees. We find that after the benchmark change, loan fees fell, lending volume increased, total lending revenue remained stable, high-cost lenders lost market share, and price efficiency increased. Our results suggest implementing price benchmarks in OTC markets can improve market quality.
Keywords: price transparency, OTC markets, benchmarks, equity lending, search costs
JEL Classification: G12, G14, G19
Suggested Citation: Suggested Citation