Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/258687 
Authors: 
Year of Publication: 
2021
Citation: 
[Journal:] Journal of Risk and Financial Management [ISSN:] 1911-8074 [Volume:] 14 [Issue:] 12 [Article No.:] 584 [Publisher:] MDPI [Place:] Basel [Year:] 2021 [Pages:] 1-26
Publisher: 
MDPI, Basel
Abstract: 
This paper investigates increased liquidity provision by market makers resulting from their ability to reduce balance sheet encumbrance through the use of central counterparties (CCPs). The introduction of the Basel III leverage rule constitutes a shock to market makers' balance sheets and thus affects their capacity to intermediate trades. Using trade-by-trade data from sovereign bond markets, we show that liquidity provision by CCP members decreased to a lesser extent following the rule change. We attribute these findings to balance sheet reductions due to the netting enabled by CCPs, thereby highlighting their importance in cash markets.
Subjects: 
trading activity
liquidity provision
market making
central counterparties
Basel III
JEL: 
G10
G12
G18
G21
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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