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Market Structure and Transaction Costs of Index CDSs - COLLIN‐DUFRESNE - 2020 - The Journal of Finance - Wiley Online Library
Source: onlinelibrary.wiley.com
Article summary:
1. The index credit default swap (CDS) market is an important component of the corporate credit market, allowing investors to efficiently hedge and trade aggregate credit risk.
2. Following the Dodd-Frank Act, new regulations were introduced that had the potential to change the market structure by mandating trades in the most liquid index CDSs be executed on swap execution facilities (SEFs).
3. This article investigates differences between transaction costs of D2C and D2D trades and whether these can be attributed to differences in price impacts or differences in dealer profits.
Article analysis:
The article “Market Structure and Transaction Costs of Index CDSs” by Collin-Dufresne is a well-researched piece that provides a comprehensive overview of the index CDS market and its post-Dodd Frank regulation. The article is written in an objective manner, presenting both sides of the argument equally and providing evidence for each claim made. The authors have also taken into account potential biases, such as dealers having market power or clients being differentially informed, which could affect the two-tiered market structure. Furthermore, they have provided detailed empirical data to support their findings regarding transaction costs in this market.
The only potential issue with this article is that it does not explore any counterarguments or alternative explanations for why all-to-all trading has yet to materialize despite new regulations being implemented several years ago. However, given that this article focuses on transaction costs rather than exploring possible reasons for why all-to-all trading has not been adopted yet, this omission can be overlooked.
In conclusion, this article is reliable and trustworthy due to its comprehensive research and objective presentation of facts and evidence.