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

Vincent Glode, Christian Opp and Ruslan Sverchkov

No 27361, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: D82 G32 L14 (search for similar items in EconPapers)
Date: 2020-06
Note: AP CF
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Published as Vincent Glode & Christian C. Opp & Ruslan Sverchkov, 2021. "To pool or not to pool? Security design in OTC markets," Journal of Financial Economics, .

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