The visible hand: benchmarks, regulation, and liquidity

Matteo Aquilina, Gbenga Ibikunle, Vito Mollica and Tom Steffen

Journal of Financial Markets, 2022, vol. 61, issue C

Abstract: According to recent theoretical work, a more transparent and precise benchmark assessment should positively impact liquidity in the underlying market. We exploit a benchmark regime change in the $289 trillion interest rate swaps market to test this prediction. Utilizing proprietary electronic order book data, we find improved liquidity effects in the USD swaps market following the transition to the regulated ICE Swap Rate. Regulations that improve the methodology and oversight of benchmarks can, therefore, impact markets positively. Conservative estimates of direct savings in a single swap tenor on one trading platform are in the region of $4 million - $7 million.

Keywords: Benchmarks; Regulation; Interest rates; Liquidity; ISDAFIX; ICE Swap rate (search for similar items in EconPapers)
JEL-codes: G14 G18 G24 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finmar:v:61:y:2022:i:c:s1386418122000271

DOI: 10.1016/j.finmar.2022.100734

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