The visible hand: benchmarks, regulation, and liquidity

Matteo Aquilina, Gbenga Ibikunle, Vito Mollica, Tom Steffen

Research output: Contribution to journalArticlepeer-review

3 Citations (Scopus)
67 Downloads (Pure)

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.
Original languageEnglish
Article number100734
Pages (from-to)1-32
Number of pages32
JournalJournal of Financial Markets
Volume61
Early online date20 Apr 2022
DOIs
Publication statusPublished - Nov 2022

Bibliographical note

© 2022 The Authors. Published by Elsevier B.V. Version archived for private and non-commercial use with the permission of the author/s and according to publisher conditions. For further rights please contact the publisher.

Keywords

  • Benchmarks
  • ICE Swap rate
  • ISDAFIX
  • Interest rates
  • Liquidity
  • Regulation

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