Liberty Street Economics

« | Main | »

December 3, 2012

Just Released: Money and Payments Workshop Examines Financial Market Structure

Thomas Eisenbach

We’ve recently posted the proceedings of an October 19 Money and Payments Workshop that brought together researchers from central banks and academia as well as practitioners to discuss the importance of financial market structure. The agenda included items hotly debated since the recent financial crisis, including central clearing, over-the-counter markets, “dark pools,” and network structures. The main theme of the workshop was the effect that market structure has on the incentives of the parties involved, the liquidity of the transactions conducted, and the efficiency of the economic outcomes achieved. This post briefly describes the six papers presented.

The workshop began with a set of three theoretical papers studying the subtleties involved in centrally clearing bilateral transactions between financial institutions. This has been an important component of recent financial reform efforts, with the aim of increasing transparency and reducing systemic risk among highly interconnected market participants. The papers analyzed features observed in central clearing, illustrated the role played by collateral required by central counterparties, and explored the effect of clearing design on the information sensitivity of transactions.

Next, two empirical studies investigated the role of market structure in bond trading. One study compared the details of trading on new electronic auction platforms with trading in traditional over-the-counter relationships. The other used data on municipal bond trading to map out the network of financial intermediaries. This allows for tracing of the transaction sequence that begins with an investor selling a bond to an intermediary, then continues with the bond potentially being traded from one intermediary to another, and ends with an investor who ultimately buys and holds the bond.

Finally, a paper on so-called dark pools—new trading venues for equities that don’t contribute to price
discovery—was presented. The paper examined whether the increasing prominence
of dark pools could increase overall price efficiency because it may lead to
informed traders concentrating in exchanges and uninformed traders
concentrating in dark pools.

All of the papers presented are at the frontier of current research, and provide important insights into the trade-offs involved in efforts to reform financial market structure with the goal of enhancing financial system stability.

The views expressed in this post are those of the author and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the author.


Thomas Eisenbach is an economist in the Federal Reserve Bank
of New York’s Research and Statistics Group.

About the Blog

Liberty Street Economics features insight and analysis from New York Fed economists working at the intersection of research and policy. Launched in 2011, the blog takes its name from the Bank’s headquarters at 33 Liberty Street in Manhattan’s Financial District.

The editors are Michael Fleming, Andrew Haughwout, Thomas Klitgaard, and Asani Sarkar, all economists in the Bank’s Research Group.

Liberty Street Economics does not publish new posts during the blackout periods surrounding Federal Open Market Committee meetings.

The views expressed are those of the authors, and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.

Economic Research Tracker

Image of NYFED Economic Research Tracker Icon Liberty Street Economics is available on the iPhone® and iPad® and can be customized by economic research topic or economist.

Economic Inequality

image of inequality icons for the Economic Inequality: A Research Series

This ongoing Liberty Street Economics series analyzes disparities in economic and policy outcomes by race, gender, age, region, income, and other factors.

Most Read this Year

Comment Guidelines


We encourage your comments and queries on our posts and will publish them (below the post) subject to the following guidelines:

Please be brief: Comments are limited to 1,500 characters.

Please be aware: Comments submitted shortly before or during the FOMC blackout may not be published until after the blackout.

Please be relevant: Comments are moderated and will not appear until they have been reviewed to ensure that they are substantive and clearly related to the topic of the post.

Please be respectful: We reserve the right not to post any comment, and will not post comments that are abusive, harassing, obscene, or commercial in nature. No notice will be given regarding whether a submission will or will
not be posted.‎

Comments with links: Please do not include any links in your comment, even if you feel the links will contribute to the discussion. Comments with links will not be posted.

Send Us Feedback

Disclosure Policy

The LSE editors ask authors submitting a post to the blog to confirm that they have no conflicts of interest as defined by the American Economic Association in its Disclosure Policy. If an author has sources of financial support or other interests that could be perceived as influencing the research presented in the post, we disclose that fact in a statement prepared by the author and appended to the author information at the end of the post. If the author has no such interests to disclose, no statement is provided. Note, however, that we do indicate in all cases if a data vendor or other party has a right to review a post.