To Pool or Not to Pool? Security Design in OTC Markets

41 Pages Posted: 15 Jun 2020

See all articles by Vincent Glode

Vincent Glode

University of Pennsylvania - The Wharton School

Christian Opp

University of Rochester

Ruslan Sverchkov

University of Pennsylvania - The Wharton School

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Date Written: June 2020

Abstract

We study security issuers' decision whether to pool assets when facing counterparties endowed with market power, as is common in over-the-counter markets. Unlike in competitive markets, pooling assets may be suboptimal in the presence of market power - both privately and socially - in particular, when the potential gains from trade are large. In these cases, pooling assets reduces the elasticity of trade volume in the relevant part of the payoff distribution, exacerbating inefficient rationing associated with the exercise of market power. Our results shed light on recently observed time-variation in the prevalence of pooling in financial markets.

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Suggested Citation

Glode, Vincent and Opp, Christian and Sverchkov, Ruslan, To Pool or Not to Pool? Security Design in OTC Markets (June 2020). NBER Working Paper No. w27361, Available at SSRN: https://ssrn.com/abstract=3626862

Vincent Glode (Contact Author)

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

Christian Opp

University of Rochester

300 Crittenden Blvd.
Rochester, NY 14627
United States

Ruslan Sverchkov

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

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