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Information insensitive securities: the benefits of central counterparties

David Mills () and Francesca Carapella ()

No 1032, 2012 Meeting Papers from Society for Economic Dynamics

Abstract: A role of CCPs that has been identified by policy makers as fostering liquidity and stability of OTC transactions, is to perform margin calls to adjust the available collateral posted for each participant's net position, following the marking to market of securities. In this framework, however, the perception that margin calls foster liquidity is incorrect: traders have even more incentives to acquire information about the securities' payoff so that fewer transactions, which would be welfare improving, are carried out.

Date: 2012
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