Centralized Trading, Transparency, and Interest Rate Swap Market Liquidity: Evidence from the Implementation of the Dodd–Frank Act

摘要

We use proprietary transaction data on interest rate swaps to assess the impact of centralized trading, as mandated by Dodd-Frank, on market quality. We show that it has led to activity increasing and liquidity improving, with the largest improvements for contracts most affected by the mandate. Associated reductions in execution costs are economically significant eg daily end-user costs of trading USD relative to EUR mandated contracts drop by $3 million–$4 million. We show that requiring centralized trading in the United States caused swap markets to fragment geographically and give evidence which suggests that fragmentation is due to dealers trying to maintain market power.