Price Transparency in OTC Equity Lending Markets: Evidence From a Loan Fee Benchmark

63 Pages Posted: 27 Mar 2020 Last revised: 11 May 2021

See all articles by Fabio Cereda

Fabio Cereda

University of Sao Paulo (USP), Faculty of Economics, Administration and Accounting (FEA), Students

Fernando Chague

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics

Rodrigo De-Losso

University of São Paulo (USP) - Department of Economics

Alan Genaro

Getulio Vargas Foundation (FGV) - Sao Paulo School of Business Administration

Bruno Giovannetti

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics

Date Written: January 15, 2021

Abstract

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

Cereda, Fabio and Chague, Fernando and De-Losso, Rodrigo and Genaro, Alan and Giovannetti, Bruno, Price Transparency in OTC Equity Lending Markets: Evidence From a Loan Fee Benchmark (January 15, 2021). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=3548019 or http://dx.doi.org/10.2139/ssrn.3548019

Fabio Cereda

University of Sao Paulo (USP), Faculty of Economics, Administration and Accounting (FEA), Students ( email )

Av. Prof. Luciano Gualberto 908
Sao Paulo
Brazil

Fernando Chague

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics ( email )

Rua Itapeva 474
São Paulo, São Paulo 01332-000
Brazil

HOME PAGE: http://https://sites.google.com/site/fchague/

Rodrigo De-Losso

University of São Paulo (USP) - Department of Economics ( email )

Av. Prof. Luciano Gualberto 908
Sao Paulo SP, 05508-010
Brazil
551130930957 (Phone)

Alan Genaro

Getulio Vargas Foundation (FGV) - Sao Paulo School of Business Administration ( email )

Sao Paulo
BRAZIL

Bruno Giovannetti (Contact Author)

Getulio Vargas Foundation (FGV) - Sao Paulo School of Economics ( email )

Rua Itapeva 474 s.1202
São Paulo, São Paulo 01332-000
Brazil

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