Collateral Eligibility of Corporate Debt in the Eurosystem

101 Pages Posted: 27 Apr 2020 Last revised: 12 Nov 2020

See all articles by Loriana Pelizzon

Loriana Pelizzon

Goethe University Frankfurt - Faculty of Economics and Business Administration; Leibniz Institute for Financial Research SAFE; Ca Foscari University of Venice

Max Riedel

Leibniz Institute for Financial Research SAFE

Zorka Simon

Leibniz Institute for Financial Research SAFE

Marti G. Subrahmanyam

New York University (NYU) - Department of Finance

Date Written: November 11, 2020

Abstract

We study the plethora of implications of the Eurosystem collateral framework for corporate bonds. Using data on the evolving collateral eligibility list, we identify the first inclusion date of bonds and issuers. We find that increased supply and demand for pledgeable collateral following eligibility (a) increases activity in the securities lending market, (b) lowers eligible bonds yields, and (c) reduces the liquidity of newly issued bonds, whereas that of older bonds remains unaffected. Thus, corporate bond lending relaxes the constraint of limited collateral supply, thereby improving market cohesion and completeness.

Keywords: Collateral Policy, ECB, Corporate Bonds, Eligibility premium

JEL Classification: G12, G18, G28, E58

Suggested Citation

Pelizzon, Loriana and Riedel, Max and Simon, Zorka and Subrahmanyam, Marti G., Collateral Eligibility of Corporate Debt in the Eurosystem (November 11, 2020). SAFE Working Paper No. 275, NYU Stern School of Business, Available at SSRN: https://ssrn.com/abstract=3586409 or http://dx.doi.org/10.2139/ssrn.3586409

Loriana Pelizzon

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, D-60323
Germany

Leibniz Institute for Financial Research SAFE ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

HOME PAGE: http://www.safe-frankfurt.de

Ca Foscari University of Venice ( email )

Dorsoduro 3246
Venice, Veneto 30123
Italy

Max Riedel

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Zorka Simon (Contact Author)

Leibniz Institute for Financial Research SAFE ( email )

(http://www.safe-frankfurt.de)
Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

Marti G. Subrahmanyam

New York University (NYU) - Department of Finance ( email )

Stern School of Business,
44 West 4th Street, Suite 9-68
New York, NY 10012-1126
United States
212-998-0348 (Phone)
212-995-4233 (Fax)

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