Price transparency in OTC equity lending markets: Evidence from a loan fee benchmark

Fábio Cereda, Fernando Chague, Rodrigo De-Losso, Alan Genaro and Bruno Giovannetti

Journal of Financial Economics, 2022, vol. 143, issue 1, 569-592

Abstract: We study the effects of a price transparency shock in the Brazilian equity lending market, an over-the-counter market. Previously, the available loan fee benchmark was the mean loan fee of the past 15 trading days. On March 1, 2011, this interval was reduced to three days, significantly improving short-sellers’ ability to predict current loan fees. We find that after the benchmark change, loan fees fell, lending volume increased, total lending revenue remained stable, high-cost lenders lost market share, and price efficiency increased. Our results suggest implementing price benchmarks in OTC markets can improve market quality.

Keywords: Price transparency; OTC markets; Benchmarks; Equity lending; Search costs (search for similar items in EconPapers)
JEL-codes: G12 G14 G19 (search for similar items in EconPapers)
Date: 2022
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Working Paper: Price Transparency in OTC Equity Lending Markets: Evidence from a Loan Fee Benchmark (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:143:y:2022:i:1:p:569-592

DOI: 10.1016/j.jfineco.2021.05.033

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