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Title
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OTC market frictions in stressed markets
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Author
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Abstract
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| This research explores the impact of over-the-counter (OTC) market frictions on liquidity within the UK gilt market, utilising the comprehensive MiFID II dataset spanning from September 2019 to November 2020. This period encompasses the critical phase of the COVID-19 pandemic, offering a unique context to analyse the dynamics of inventory, search, and bargaining frictions that are characteristic of OTC markets. Our findings reveal a substantial statistical correlation between the exacerbation of these prevalent OTC frictions and the observable decrease in market liquidity during the heightened stress of the COVID-19 crisis. The study provides a deeper understanding of the resilience of financial markets under stress and offers insights for both policymakers and market participants on market functioning and stability. |
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Language
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English
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Source (series)
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Occasional paper series / Financial Conduct Authority ; 64
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Publication
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London
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Financial Conduct Authority
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2024
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Volume/pages
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41 p.
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Full text (open access)
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