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Discussion Paper
How Has Post-Crisis Banking Regulation Affected Hedge Funds and Prime Brokers?
“Arbitrageurs” such as hedge funds play a key role in the efficiency of financial markets. They compare closely related assets, then buy the relatively cheap one and sell the relatively expensive one, thereby driving the prices of the assets closer together. For executing trades and other services, hedge funds rely on prime brokers and broker-dealers. In a previous Liberty Street Economics blog post, we argued that post-crisis changes to regulation and market structure have increased the costs of arbitrage activity, potentially contributing to the persistent deviations in the prices of ...
Newsletter
How the U.S. Treasury Futures Market and the Basis Trade Could Be Affected by the Treasury Clearing Mandate: Part 2—The Possible Role of Cross-Margining
In part 2 of this Chicago Fed Letter series, I delve further into the implications of the U.S. Securities and Exchange Commission’s (SEC) recent mandate requiring transactions for both U.S. Treasury cash securities and repurchase agreements (repos) to be cleared and settled through an authorized central counterparty (CCP). In part 1, I provided a primer on the Treasury futures market and the Treasury cash–futures basis trade and touched on the possible impact of the SEC mandate on both. Here, I explain in greater detail how the mandate could affect the cost and functioning of the basis ...
Newsletter
How the U.S. Treasury Futures Market and the Basis Trade Could Be Affected by the Treasury Clearing Mandate: Part 1—A Primer
A recent mandate by the U.S. Securities and Exchange Commission (SEC) aims to improve the resilience and transparency of markets for U.S. Treasury cash securities and repurchase agreements (repos) by requiring transactions for both be cleared and settled through an authorized central counterparty (CCP). I explore the implications of this mandate for Treasury markets and central clearing in a two-part Chicago Fed Letter series. Part 1 is a primer on Treasury futures and the Treasury cash–futures basis trade—two key features of the Treasury markets that could also be affected by the mandate.