Credit Risk and Interdealer Networks August 2015

Credit Risk and Interdealer Networks
Nina Boyarchenko, Anna Costello, Jennifer La’O, Or Shachar
Federal Reserve Bank of New York, Michigan–Ross and Columbia
August 2015
The views expressed here are those of the authors and do not
necessarily reflect those of the Federal Reserve Bank of New York,
the Federal Reserve System or the Financial Industry Regulatory
Authority
1 / 34
Credit Risk and Interdealer Connectivity
• Financial institutions may be exposed to non-financial credit risk
through both fundamental and derivatives positions.
• Institutions operate in multiple markets
• adds complexity to the distribution of credit risk
• need to know both fundamental and derivative positions
• Bank interconnectness → implications for systemic risk
• Our Project: Empirical analysis of flows in the Corporate Bond,
Credit Default Swap (CDS) and Syndicated Loans Markets
2 / 34
Credit Risk Markets
These three markets represent different ways to trade credit risk
1
Corporate bond market: participants may trade directly the credit
risk of the corporate sector.
2
Syndicated loan market: direct exposure to corporate credit risk but
limited to only the largest borrowers
3
CDS market: participants can more easily assume both long and
short positions without lending directly to the ultimate borrower.
We link participants from these three markets to create a more complete
picture of how intermediaries assume and distribute credit risk.
3 / 34
Big Picture Questions
• What determines dealers’ gross and net exposures to credit risk?
• How much are derivatives used for hedging corporate bond
positions?
• What do the interdealer networks in OTC markets look like? What
determines the centrality and positions within the network of
particular institutions?
• How do these network structures compare across markets? Are
trading relationships the same across markets?
• How stable are these trading relationships? What predicts new links
between nodes?
• How do the overlapping network structures distribute risk
throughout the financial sector?
4 / 34
For Today: Smaller Picture
• CDS Results
• CDS trading conditional on relationships in other markets
• Implications may be useful for:
• network and search & matching models of OTC trade
• risk management models for dealers
5 / 34
The CDS Data
• DTCC data
• Open positions (weekly) of the 6 dealers supervised by the NY Fed
• Sample Period: November 2013-January 2015
• For each outstanding position we have:
• the underlying: both single name and index (in progress); both
corporate and sovereign
• the notional amount
• the maturity
• the CDS spread and upfront
• the currency
• the restructuring clause (list of credit events)
6 / 34
CDS Aggregate Summary Statistics
• Transactions can be aggregated in a number of ways
• Number of Contracts
• Gross Notional Amount
• Net Notional Amount
7 / 34
Gross Notional
Dealer A
Dealer B
buys $100 of CDS on Corp XYZ
sells $100 of CDS on Corp XYZ
8 / 34
Gross Notional
Dealer A
Dealer B
buys $100 of CDS on Corp XYZ
sells $100 of CDS on Corp XYZ
• Number of Contracts: 1
• Gross Notional: $100
• Net Notional: $100
8 / 34
Net Notional
Dealer A
Dealer B
buys $100 of CDS on Corp XYZ
sells $50 of CDS on Corp XYZ
sells $100 of CDS on Corp XYZ
buys $50 of CDS on Corp XYZ
9 / 34
Net Notional
Dealer A
Dealer B
buys $100 of CDS on Corp XYZ
sells $50 of CDS on Corp XYZ
sells $100 of CDS on Corp XYZ
buys $50 of CDS on Corp XYZ
• Number of Contracts: 2
• Gross Notional: $150
• Net Notional: $50
9 / 34
CDS aggregate sample
No. Contracts (’000s)
DTCC Sup.
TIW
Minimum
Q5
Q25
Q50
Q75
Q95
Maximum
Standard Deviation
73.09
840.41
943.35
967.46
1,030.96
1,046.86
1,126.57
138.18
1,120.20
1,122.40
1,190.19
1,294.11
1,435.23
1,520.13
1,526.05
135.10
Gross Not. ($BLN)
DTCC Sup.
TIW
959.67
5,778.47
6,373.44
6,708.55
7,009.29
7,117.64
7,541.84
881.37
7,543.45
7,609.88
8,185.09
9,059.04
10,107.41
10,615.79
10,667.80
1,052.79
Net Not. ($BLN)
DTCC Sup.
TIW
213.22
493.37
519.89
540.68
564.06
579.22
1,310.52
120.08
631.60
635.95
669.51
727.37
793.22
813.74
828.64
63.12
10 / 34
CDS aggregate sample
No. Contracts (’000s)
DTCC Sup.
TIW
Minimum
Q5
Q25
Q50
Q75
Q95
Maximum
Standard Deviation
73.09
840.41
943.35
967.46
1,030.96
1,046.86
1,126.57
138.18
1,120.20
1,122.40
1,190.19
1,294.11
1,435.23
1,520.13
1,526.05
135.10
Gross Not. ($BLN)
DTCC Sup.
TIW
959.67
5,778.47
6,373.44
6,708.55
7,009.29
7,117.64
7,541.84
881.37
7,543.45
7,609.88
8,185.09
9,059.04
10,107.41
10,615.79
10,667.80
1,052.79
Net Not. ($BLN)
DTCC Sup.
TIW
213.22
493.37
519.89
540.68
564.06
579.22
1,310.52
120.08
631.60
635.95
669.51
727.37
793.22
813.74
828.64
63.12
• 67% dealer-to-customer; 25% dealer-to-dealer
• 73% 1-5 year maturity
10 / 34
Key Explanatory Variables
• Book Equity (Size): book assets (Compustat) - book liabilities
(Compustat)
• Book Leverage: ratio of book assets to book equity
• Enterprise value: book assets - book equity + market equity (CRSP)
• Book-to-Market ratio
• Equity return
• Relationship in other credit markets (indicators):
• Seller sells bonds: DTCC seller selling bonds to DTCC buyer
same period
• Buyer sells bonds: DTCC buyer selling bonds to DTCC seller
same period
• Seller borrows: seller borrows from buyer in syndicated loan
market
• Buyer borrows: buyer borrows from seller in syndicated loan
market
• Same syndicate: seller and buyer members of same syndicate
• Value-at-Risk (VaR): self-reported (Bloomberg) risk limit
• CDS return: one week change in the 5 year CDS spread
11 / 34
Credit trading networks
(a) DTCC
(b) TRACE
(c) Dealscan
12 / 34
DTCC network
13 / 34
TRACE network
14 / 34
Construction of Directed Graph for CDS
• N = 936 nodes: dealers and customers
• Strength of a trading relationship: gross notional amount traded
• aggregate across all contracts bought by node i from node j
• convert to equivalent risk-neutral duration
(maturity and credit risk of underlying)
• then add together → risk-neutral duration-weighted position
• Let At be the corresponding N × N weighted adjacency matrix
• Aijt is the quantity bought by node i from node j in period t
• At need not be symmetric (transpose would be sell matrix)
15 / 34
Centrality measures
• In-degree: total amount bought by node i
∑ Aijt
diin =
j
• Out-degree: total amount sold by node i
diout =
∑ Ajit
j
• Eigenvector Centrality
ci =
∑ Aji cj
j
• Betweeness: amount of network flows “controlled” by node k
C BTW (k ) =
∑∑
i
j
gikj
,
gij
i 6= j 6= k
• Closeness: reciprocal of the distance of the node to all other nodes
Cicl
=
∑ d (j, i )
j
! −1
16 / 34
Eigencentrality
(e) Seller eigencentrality
Density
.4
0
0
.2
.2
Density
.4
.6
.6
.8
.8
(d) Buyer eigencentrality
-15
-10
-5
Supervised
0
Others
-15
-10
-5
Supervised
0
Others
17 / 34
Degree
(g) Out-degree
Density
.4
0
0
.2
.2
Density
.4
.6
.6
.8
(f) In-degreee
-10
-5
0
Supervised
5
Others
10
-10
-5
0
Supervised
5
10
Others
18 / 34
Betweeness
6
Density
4
2
0
0
2
Density
4
6
8
(i) Seller betweeness
8
(h) Buyer betweeness
0
.2
.4
.6
.8
0
.2
.4
.6
.8
19 / 34
Cross-sectional determinants: CDS market
Constant
Book equity (log)
Book leverage
Enterprise value (log)
Book-to-market
Stock return
Deposit. inst.
Non-deposit. inst.
Broker-dealers
Ins. carr.
Ins. brok.
Inv. adv.
Unclass.
sigma
N. obs
Centrality (buy)
Centrality (sell)
In-degree
Out-degree
Betweeness (buy)
Betweeness (sell)
Closeness (buy)
Closeness (sell)
0.250∗∗∗
0.015∗∗∗
0.004∗∗∗
-0.010∗∗∗
-0.005∗∗∗
-0.006
-0.288∗∗∗
-0.286∗∗∗
-0.291∗∗∗
-0.320∗∗∗
-0.286∗∗∗
-0.287∗∗∗
-0.278∗∗∗
0.095∗∗∗
0.253∗∗∗
0.014∗∗∗
0.004∗∗∗
-0.010∗∗∗
-0.005∗∗∗
-0.007
-0.293∗∗∗
-0.287∗∗∗
-0.292∗∗∗
-0.324∗∗∗
-0.286∗∗∗
-0.289∗∗∗
-0.281∗∗∗
0.094∗∗∗
0.070∗∗
0.009∗∗∗
-0.001∗∗∗
0.014∗∗∗
-0.003∗∗∗
0.030
-0.331∗∗∗
-0.385∗∗∗
-0.312∗∗∗
-0.344∗∗∗
-0.383∗∗∗
-0.349∗∗∗
-0.249∗∗∗
0.115∗∗∗
0.303∗∗∗
0.015∗∗∗
-0.000∗
-0.005∗∗∗
-0.004∗∗∗
0.048
-0.363∗∗∗
-0.374∗∗∗
-0.374∗∗∗
-0.386∗∗∗
-0.356∗∗∗
-0.364∗∗∗
-0.356∗∗∗
0.109∗∗∗
-0.728∗∗∗
0.318∗∗∗
-0.001
-0.212∗∗
-0.078∗∗∗
0.624
-0.308∗∗∗
-1.255
-1.887
-1.515
-1.339
-1.510
-1.229
0.223∗∗∗
-0.728∗∗∗
0.318∗∗∗
-0.001
-0.212∗∗
-0.078∗∗∗
0.624
-0.308∗∗∗
-1.255
-1.887
-1.515
-1.339
-1.510
-1.229
0.223∗∗∗
-0.001
0.001∗∗∗
0.000∗
-0.001∗∗∗
-0.000
0.005
0.000
0.001
0.000
-0.001
0.002
0.002
0.001
0.014∗∗∗
-0.019∗∗∗
0.000
-0.000
0.001∗∗∗
0.000∗∗∗
-0.003
-0.000
-0.005∗∗
0.003∗∗
-0.000
-0.005∗∗
-0.001
0.007∗∗∗
0.012∗∗∗
4005
4005
4005
4005
4005
4005
4005
4005
20 / 34
Cross-sectional determinants: CDS market
Constant
Book equity (log)
Book leverage
Enterprise value (log)
Book-to-market
Stock return
Deposit. inst.
Non-deposit. inst.
Broker-dealers
Ins. carr.
Ins. brok.
Inv. adv.
Unclass.
Bond eigen (buy)
Bond eigen (sell)
Bond indegree
Bond outdegree
Bond betweeness (buy)
Bond betweeness (sell)
Bond close (buy)
Bond close (sell)
sigma
N. obs
Centrality (buy)
Centrality (sell)
In-degree
Out-degree
Betweeness (buy)
Betweeness (sell)
Closeness (buy)
Closeness (sell)
0.376∗∗∗
0.063∗∗∗
0.008∗∗∗
-0.065∗∗∗
0.003
-0.027
-0.275∗∗∗
0.000
-0.278∗∗∗
-0.312∗∗∗
0.000
-0.281∗∗∗
0.000
0.185∗∗∗
0.385∗∗∗
0.064∗∗∗
0.008∗∗∗
-0.065∗∗∗
0.003
-0.066
-0.294∗∗∗
0.000
-0.291∗∗∗
-0.337∗∗∗
0.000
-0.299∗∗∗
0.000
0.186∗∗∗
0.059∗∗
-0.000
-0.048∗∗
0.002
0.126
-0.304∗∗∗
0.000
-0.323∗∗∗
-0.208∗∗∗
0.000
-1.207
0.000
0.267∗∗∗
0.096∗∗∗
-0.000
-0.080∗∗∗
-0.001
0.042
-0.312∗∗∗
0.000
-0.303∗∗∗
-0.233∗∗∗
0.000
-0.318∗∗∗
0.000
-0.337∗
0.398∗∗∗
0.006
-0.314∗∗∗
-0.065∗∗∗
0.168
-0.280∗∗∗
0.000
-1.440
-1.272
0.000
-1.602
0.000
-0.337∗
0.398∗∗∗
0.006
-0.314∗∗∗
-0.065∗∗∗
0.168
-0.280∗∗∗
0.000
-1.440
-1.272
0.000
-1.602
0.000
-0.008
0.002
-0.000
-0.001
-0.000
0.008
0.002
0.000
0.003∗
0.002
0.000
0.003
0.000
-0.010∗∗∗
0.001
0.000
0.000
0.000∗∗
-0.001
-0.002∗∗∗
0.000
-0.001∗∗
-0.001∗∗
0.000
-0.225
0.000
0.155∗∗∗
0.203∗∗∗
0.158∗∗∗
0.370∗∗∗
0.370∗∗∗
0.004
0.132∗∗∗
0.131∗∗∗
0.152∗∗∗
0.149∗∗∗
0.222∗∗∗
0.222∗∗∗
0.020∗∗∗
0.000
0.016∗∗∗
1850
1850
1850
1850
1850
1850
1850
1850
20 / 34
Time-series determinants: CDS market
Constant
Book equity (log)
Book leverage
Enterprise value (log)
Book-to-market
Stock return
sigma
N. obs
Centrality (buy)
Centrality (sell)
In-degree
Out-degree
Betweeness (buy)
Betweeness (sell)
Closeness (buy)
Closeness (sell)
0.020
-0.005∗
0.001
0.003∗∗
0.002∗∗
0.005
0.014∗∗∗
0.017
-0.005∗
0.001
0.003∗
0.002∗
0.008
0.015∗∗∗
0.084∗∗∗
-0.014∗∗∗
0.000
0.005∗∗∗
0.003∗∗∗
0.013
0.016∗∗∗
-0.066∗∗∗
-0.003∗∗∗
0.000∗∗∗
0.002∗∗∗
0.001∗∗∗
0.008∗∗∗
0.013∗∗∗
-0.618∗∗∗
0.005∗∗∗
0.011∗∗∗
0.004∗∗∗
0.005∗∗∗
0.122∗∗∗
0.034∗∗∗
-0.618∗∗∗
0.005∗∗∗
0.011∗∗∗
0.004∗∗∗
0.005∗∗∗
0.122∗∗∗
0.034∗∗∗
-0.213∗∗∗
0.005∗∗∗
0.000∗∗∗
-0.001∗∗∗
-0.002∗∗∗
-0.014∗∗∗
0.029∗∗∗
0.012
-0.006∗
-0.000
0.005∗∗
-0.000
-0.011∗∗
0.026∗∗∗
4005
4005
4005
4005
4005
4005
4005
4005
21 / 34
Time-series determinants: CDS market
Constant
Book equity (log)
Book leverage
Enterprise value (log)
Book-to-market
Stock return
Bond eigen (buy)
Bond eigen (sell
Bond indegree
Bond outdegree
Bond betweeness (buy)
Bond betweeness (sell)
Bond close (buy)
Bond close (sell)
sigma
N. obs
Centrality (buy)
Centrality (sell)
In-degree
Out-degree
Betweeness (buy)
Betweeness (sell)
close (buy)
close (sell)
0.435∗∗
-0.073∗∗∗
-0.004∗∗∗
0.019∗∗∗
0.010∗∗∗
0.010
-0.001
0.356∗
-0.060∗∗∗
-0.003∗∗∗
0.016∗∗∗
0.008∗∗∗
0.018
0.208∗
-0.026∗
0.000
0.001
0.008∗∗∗
0.030
0.052∗∗∗
-0.025∗∗∗
0.000∗∗∗
0.003∗∗∗
0.004∗∗∗
0.020∗∗∗
2.171∗∗∗
-0.258∗∗∗
0.003∗∗∗
-0.035∗∗∗
0.001
0.147∗∗∗
2.171∗∗∗
-0.258∗∗∗
0.003∗∗∗
-0.035∗∗∗
0.001
0.147∗∗∗
-0.185∗∗∗
-0.007∗∗∗
0.000∗∗∗
-0.002∗∗∗
-0.004∗∗∗
-0.028∗∗∗
-0.084
0.015
0.000
-0.004
-0.002
-0.031
-0.000
0.003
-0.004∗∗∗
-0.008∗∗
-0.008∗∗
-0.007∗∗∗
0.020∗∗∗
0.022∗∗∗
0.022∗∗∗
0.019∗∗∗
0.036∗∗∗
0.036∗∗∗
0.042∗∗∗
-0.009
0.037
1721
1721
1721
1721
1721
1721
1721
1721
21 / 34
Cross-sectional determinants: Bond market
Constant
Book equity (log)
Book leverage
Enterprise value (log)
Book-to-market
Stock return
Deposit. inst.
Non-deposit. inst.
Broker-dealers
Ins. carr.
Ins. brok.
Inv. adv.
Unclass.
sigma
N. obs
Centrality (buy)
Centrality (sell)
In-degree
Out-degree
Betweeness (buy)
Betweeness (sell)
Closeness (buy)
Closeness (sell)
-0.536∗∗∗
-0.024
0.003∗∗
0.074∗∗∗
-0.045∗∗∗
-0.026
-0.052∗∗∗
0.000
-0.076∗∗∗
-0.192∗∗∗
0.000
-0.073∗∗∗
0.000
0.151∗∗∗
-0.674∗∗∗
-0.048∗∗
0.003∗
0.098∗∗∗
-0.055∗∗∗
0.194
0.027∗∗∗
0.000
-0.013
-0.094∗∗∗
0.000
0.006
0.000
0.163∗∗∗
-0.057
0.093∗∗
0.016∗∗∗
-0.023
-0.051∗∗∗
-0.110
-0.120∗∗∗
0.000
-0.011
-0.622∗∗∗
0.000
-0.615∗∗∗
0.000
0.178∗∗∗
0.023
0.073
0.016∗∗∗
-0.012
-0.053∗∗∗
0.108
-0.113∗∗∗
0.000
-0.049∗
-0.607∗∗∗
0.000
-0.458∗∗∗
0.000
0.186∗∗∗
0.004
-0.020
0.003∗
0.030
-0.017∗∗∗
0.254∗
-0.121∗∗∗
0.000
-0.167∗∗∗
-0.343∗∗∗
0.000
-0.875
0.000
0.117∗∗∗
0.004
-0.020
0.003∗
0.030
-0.017∗∗∗
0.254∗
-0.121∗∗∗
0.000
-0.167∗∗∗
-0.343∗∗∗
0.000
-0.875
0.000
0.117∗∗∗
-0.055∗∗∗
-0.009
0.001
0.013
-0.001
-0.040
-0.011∗∗∗
0.000
-0.019∗∗∗
-0.087∗∗∗
0.000
-0.062∗∗
0.000
0.048∗∗∗
-0.163∗∗∗
0.005
0.001
0.013
-0.002
-0.065
-0.021∗∗∗
0.000
-0.005
-0.222∗∗∗
0.000
-0.273∗∗∗
0.000
0.084∗∗∗
2120
2120
2120
2120
2120
2120
2120
2120
22 / 34
Cross-sectional determinants: Bond market
Constant
Book equity (log)
Book leverage
Enterprise value (log)
Book-to-market
Stock return
Deposit. inst.
Non-deposit. inst.
Broker-dealers
Ins. carr.
Ins. brok.
Inv. adv.
Unclass.
CDS eigen (buy)
CDS eigen (sell)
CDS indegree
CDS outdegree
CDS betweeness (buy)
CDS betweeness (sell)
CDS close (buy)
CDS close (sell)
sigma
N. obs
Centrality (buy)
Centrality (sell)
In-degree
Out-degree
Betweeness (buy)
Betweeness (sell)
Closeness (buy)
Closeness (sell)
-0.749∗∗∗
-0.041∗
0.001
0.099∗∗∗
-0.046∗∗∗
0.007
0.029∗
0.000
0.016
-0.090∗∗∗
0.000
0.036
0.000
0.238∗∗∗
-0.906∗∗∗
-0.071∗∗∗
-0.000
0.128∗∗∗
-0.056∗∗∗
0.224
0.112∗∗∗
0.000
0.077∗∗∗
0.011
0.000
0.135∗∗∗
0.000
-0.388∗∗∗
0.054
0.013∗∗∗
0.029
-0.053∗∗∗
-0.193
-0.037∗∗∗
0.000
0.086∗∗∗
-0.534∗∗∗
0.000
-0.551∗∗∗
0.000
-0.318∗∗
0.037
0.013∗∗∗
0.037
-0.056∗∗∗
-0.059
-0.032∗∗
0.000
0.046
-0.506∗∗∗
0.000
-0.303∗∗∗
0.000
-0.089
-0.025
0.002
0.039
-0.019∗∗∗
0.230
-0.098∗∗∗
0.000
-0.140∗∗∗
-0.327∗∗∗
0.000
-0.864
0.000
-0.089
-0.025
0.002
0.039
-0.019∗∗∗
0.230
-0.098∗∗∗
0.000
-0.140∗∗∗
-0.327∗∗∗
0.000
-0.864
0.000
-0.056∗∗∗
-0.011
0.001
0.015
-0.001
-0.033
-0.010∗∗∗
0.000
-0.019∗∗∗
-0.078∗∗∗
0.000
-0.037∗
0.000
-0.196∗∗∗
-0.006
0.001
0.024
-0.003
-0.090
-0.017∗∗∗
0.000
-0.002
-0.220∗∗∗
0.000
-0.211∗∗
0.000
0.238∗∗∗
0.208∗∗∗
0.182∗∗∗
0.121∗
0.121∗
0.010
0.150∗∗∗
0.162∗∗∗
0.171∗∗∗
0.179∗∗∗
0.120∗∗∗
0.120∗∗∗
0.046∗∗∗
0.004
0.084∗∗∗
1850
1850
1850
1850
1850
1850
1850
1850
22 / 34
Time-series determinants: Bond market
Constant
Book equity (log)
Book leverage
Enterprise value (log)
Book-to-market
Stock return
sigma
N. obs
Centrality (buy)
Centrality (sell)
In-degree
Out-degree
Betweeness (buy)
Betweeness (sell)
Closeness (buy)
Closeness (sell)
-1.559∗∗
0.157∗∗
-0.002
0.029
-0.020∗∗
0.008
0.097∗∗∗
-1.913∗∗∗
0.213∗∗∗
0.008∗∗
0.013
0.002
0.063
0.086∗∗∗
0.032
-0.039
-0.002
0.027
-0.051∗∗∗
0.064
0.079∗∗∗
0.459
-0.080
0.001
0.023
-0.027∗∗∗
0.164∗∗∗
0.083∗∗∗
-0.796
0.066
0.003
0.013
-0.005
0.142∗∗
0.070∗∗∗
-0.796
0.066
0.003
0.013
-0.005
0.142∗∗
0.070∗∗∗
-1.140
0.208
-0.002
-0.042
-0.027∗∗
-0.403∗∗∗
0.154∗∗∗
-0.344
0.163
-0.007
-0.086
-0.019
0.668∗∗∗
0.205∗∗∗
2120
2120
2120
2120
2120
2120
2120
2120
23 / 34
Time-series determinants: Bond market
Constant
Book equity (log)
Book leverage
Enterprise value (log)
Book-to-market
Stock return
CDS eigen (buy)
CDS eigen (sell
CDS indegree
CDS outdegree
CDS betweeness (buy)
CDS betweeness (sell)
CDS close (buy)
CDS close (sell)
sigma
N. obs
Centrality (buy)
Centrality (sell)
In-degree
Out-degree
Betweeness (buy)
Betweeness (sell)
Closeness (buy)
Closeness (sell)
-2.878∗∗∗
0.295∗∗∗
0.001
0.047∗
-0.014
-0.017
0.042
-2.366∗∗∗
0.280∗∗∗
0.009
0.003
0.003
0.044
0.230
-0.047
-0.008∗∗
0.022
-0.020∗∗
-0.022
0.204
-0.051
-0.005
0.033
0.012
0.055
-0.568
0.030
-0.002
0.023
-0.003
0.175∗∗∗
-0.568
0.030
-0.002
0.023
-0.003
0.175∗∗∗
-1.990
0.334
0.004
-0.066
-0.075∗∗∗
-0.365∗∗∗
-1.395
0.323
0.001
-0.122∗
-0.079∗∗∗
0.997∗∗∗
0.152
-0.059
-0.192∗∗∗
-0.038
-0.038
-0.106∗∗∗
0.103∗∗∗
0.090∗∗∗
0.068∗∗∗
0.074∗∗∗
0.072∗∗∗
0.072∗∗∗
0.162∗∗∗
0.139∗∗∗
0.210∗∗∗
1689
1689
1689
1689
1689
1689
1689
1689
23 / 34
Probability of relationship
(1)
(2)
(3)
Seller book equity > Buyer book equity
Seller book leverage > Buyer book leverage
Seller book-to-market > Buyer book-to-market
Seller enterprise value > Buyer enterprise value (log)
Seller stock return > Buyer stock return
Buyer bond seller
Seller bond seller
Buyer borrower
Seller borrower
Same syndicate
Seller value-at-risk > Buyer value-at-risk
Seller CDS spread > Buyer CDS spread
0.003∗∗
0.003∗∗∗
0.003∗∗∗
-0.001
0.000
0.002∗∗
0.004∗∗∗
0.003∗∗∗
-0.001
-0.000
0.012∗∗∗
0.012∗∗∗
0.018∗∗∗
0.028∗∗∗
-0.031∗∗∗
-0.011
-0.021∗∗
0.023∗∗
-0.024∗
-0.006
0.001
0.043
0.000
0.143∗∗∗
0.187∗∗∗
0.010
-0.020∗∗
N. obs
612892
612892
8819
24 / 34
Strength of relationship
Flow
Constant
Buyer book equity (log)
Buyer book leverage
Buyer enterprise value (log)
Buyer book-to-market
Buyer stock return
Seller book equity (log)
Seller book leverage
Seller enterprise value (log)
Seller book-to-market
Seller stock return
Bond market rel
Buyer borrower
Same syndicate
Buyer value-at-risk
Buyer CDS return
Seller value-at-risk
Seller CDS return
sigma
N. obs
Positions
1
2
3
4
5
6
0.001∗∗∗
-0.000∗∗∗
-0.000∗
0.000∗∗∗
0.000∗∗∗
-0.001
-0.000∗∗∗
-0.000∗∗
0.000∗∗∗
0.000∗∗∗
-0.001
0.000∗
-0.000∗∗∗
-0.000∗∗∗
0.000∗∗∗
0.000∗∗
-0.001
-0.000∗∗∗
-0.000∗∗∗
0.000∗∗∗
0.000∗∗
-0.001
-0.000∗∗
0.000∗∗∗
-0.000∗∗
-0.377
-0.075
-0.004
0.079
-0.002
0.040
-0.070
-0.004
0.074
-0.003
0.041
0.003
-0.005
0.007
-0.006
0.003
-0.006
0.003
-0.446∗∗∗
0.009∗∗∗
-0.002∗∗∗
0.006∗∗
-0.005∗∗∗
0.033∗∗∗
0.005
-0.003∗∗∗
0.014∗∗∗
-0.004∗∗∗
0.069∗∗∗
-0.161∗∗∗
0.004
-0.000
0.002
-0.002∗∗
0.026∗∗
-0.000
-0.001∗∗∗
0.009∗∗∗
-0.002∗
0.060∗∗∗
0.011∗∗∗
0.015∗∗∗
-0.022∗∗∗
0.050∗∗∗
0.049∗∗∗
0.773∗∗∗
0.013∗∗∗
-0.002∗∗∗
-0.033∗∗∗
-0.004∗∗∗
-0.123∗∗∗
0.038∗∗∗
-0.001∗∗∗
-0.064∗∗∗
0.005∗∗∗
-0.064∗∗∗
-0.015∗∗∗
0.017∗∗∗
0.015∗∗∗
-0.065∗∗∗
-0.004∗∗
-0.090∗∗∗
-0.004∗
0.027∗∗∗
390304
390304
3790
289580
289580
2418
25 / 34
Distribution of trading partners in CDS market
.4
(k) Number of sellers a buyer has
Density
.2
0
0
.1
.1
.2
Density
.3
.3
.4
.5
(j) Number of buyers a seller has
0
20
40
Supervised
60
Others
80
0
20
40
Supervised
60
Others
26 / 34
Number of trading partners in CDS market
Number of buyers a seller has
Seller book equity (log)
Seller book leverage
Seller enterprise value (log)
Seller book-to-market
Seller stock return
Deposit. inst.
Broker-dealer
Seller value-at-risk
Seller CDS return
N. obs
1
2
0.070
0.007
-0.142∗∗
-0.051∗∗
-0.177
-0.515∗∗
-0.612∗∗∗
2.060
-0.037
-2.273
-0.625
-0.528
-0.229
2.861
-2.216∗∗
-0.005
520516
47690
Number of sellers a buyer has
1
2
Buyer book equity (log)
Buyer book leverage
Buyer enterprise value (log)
Buyer book-to-market
Buyer stock return
Deposit. inst.
Broker-dealer
Buyer value-at-risk
Buyer CDS return
0.062
0.018
-0.265
-0.102
-0.509
-2.958∗∗
-2.951∗∗
8.247
-0.553
-9.767
-2.645
0.172
-1.771
13.768
-15.180∗∗
0.032
N. obs
515087
47690
27 / 34
Distribution of trading partners in bond market
(m) Number of sellers a buyer has
0
0
.02
.02
Density
Density
.06
.04
.04
.08
.1
.06
(l) Number of buyers a seller has
0
20
40
Supervised
60
80
Others
100
0
20
40
Supervised
60
80
Others
28 / 34
Number of trading partners in bond market
Number of buyers a seller has
Seller book equity (log)
Seller book leverage
Seller enterprise value (log)
Seller book-to-market
Seller stock return
Deposit. inst.
Broker-dealer
Seller value-at-risk
Seller CDS return
Constant
N. obs
1
2
-4.654∗∗∗
-0.216∗∗∗
4.946∗∗∗
-0.042∗∗∗
1.533∗∗∗
-0.783∗∗∗
-2.316∗∗∗
-9.410∗∗∗
5.236∗∗∗
0.097∗
-7.850∗∗∗
0.200∗∗∗
-12.625∗∗∗
2.535∗∗∗
-3.692∗∗∗
-9.701∗∗∗
-0.185
74.149∗∗∗
50937
13760
Number of sellers a buyer has
Buyer book equity (log)
Buyer book leverage
Buyer enterprise value (log)
Buyer book-to-market
Buyer stock return
Deposit. inst.
buyer sic2d==62
Buyer value-at-risk
Buyer CDS return
Constant
N. obs
1
2
-5.751∗∗∗
-0.296∗∗∗
5.979∗∗∗
-0.039∗∗∗
5.364∗∗∗
-0.474∗∗∗
-2.316∗∗∗
-10.428∗∗∗
-10.756∗∗∗
-0.858∗∗∗
5.344∗∗∗
-0.509∗∗∗
18.540∗∗∗
2.203∗∗∗
0.490
-32.967∗∗∗
-0.082
101.381∗∗∗
50882
13631
29 / 34
Distribution of trading partners in syndicated loan market
(o) Number of borrowers a lender
has
0
.01
2.0e-04
Density
.02
Density
4.0e-04
.03
6.0e-04
.04
8.0e-04
(n) Number of lenders a borrower
has
0
0
0
50
100
150
5000
10000
Supervised
15000
20000
Others
30 / 34
Number of trading partners in syndicated loan market
Number of other
Number of borrowers Number of lenders a
borrower has
lenders in syndicate
a lender has
Lender book equity (log)
Lender book leverage
Lender enterprise value (log)
Lender book-to-market
Lender stock return
Deposit. inst.
Broker-dealer
Ins. carr.
Lender value-at-risk
Lender CDS return
N. obs
1
2
0.093∗∗∗
0.038∗∗∗
0.090∗∗
-0.009∗∗∗
0.026
-0.304∗∗∗
0.265∗∗∗
-0.868∗∗∗
0.878∗∗∗
0.124∗∗∗
-0.888∗∗∗
0.017∗∗∗
-0.238
-0.810∗∗∗
-0.807∗∗∗
0.000
-0.343∗∗∗
-0.081
31323
8560
1
Borrower book equity (log)
Borrower book leverage
Borrower enterprise value (log)
Borrower book-to-market
Borrower stock return
Deposit. inst.
Broker-dealer
Ins. carr.
Inv. adv.
N. obs
0.026∗∗∗
0.031∗∗∗
0.133∗∗∗
-0.045∗∗∗
0.303∗∗∗
2.546∗∗∗
2.436∗∗∗
1.971∗∗∗
2.873∗∗∗
26706
Lender book equity (log)
Lender book leverage
Lender enterprise value (log)
Lender book-to-market
Lender stock return
Deposit. inst.
Broker-dealer
Ins. carr.
Lender value-at-risk
Lender CDS return
N. obs
1
2
-0.082∗∗∗
0.004∗
0.098∗∗∗
0.001∗∗
0.206
0.060∗∗∗
-0.109∗∗∗
-0.940∗∗∗
-0.216∗
0.027∗∗∗
-0.592∗∗∗
0.008∗∗
-0.053
-0.655∗∗∗
-1.269∗∗∗
0.000
-0.224∗∗∗
-0.050
31323
8619
31 / 34
Summary of Results (so far)
• Systematic differences between high centrality (market makers) and
low centrality dealers
• High centrality: larger, more levered, lower book assets
• Regulatory changes that cause dealers to increase equity may
lead to decreased centrality (e.g. supplemental leverage ratio)
• Fewer transactions with riskier counterparties
• High market value dealers: less counterparties, but larger positions
• Relationship in other markets: higher probability of relationship but
smaller position
32 / 34
0
.5
Density
1
1.5
Length of continuous trading relationships in CDS markets
0
5
10
weeks
15
20
33 / 34
Future Work
• Near Future: Match data to Corporate Bond positions and
Syndicated Loans
• Further Future: Structural Model
34 / 34