An Analysis of Over-the-Counter and Centralized Stock Lending Markets

54 Pages Posted: 12 Sep 2013 Last revised: 22 Sep 2018

See all articles by Zsuzsa R. Huszar

Zsuzsa R. Huszar

National University of Singapore ; Central European University; Singapore Management University

Melissa Porras Prado

Nova School of Business and Economics; Centre for Economic Policy Research (CEPR)

Date Written: February 7, 2017

Abstract

This study provides novel evidence about the functioning of the centralized and the OTC stock lending markets in Japan, and show that in general the OTC market has a superior role in promoting pricing efficiency. In the subsample where the OTC market supply is limited, the centralized market relaxes short-sale constraints but it is still unable to fully substitute for the price discovery role of the OTC market. Overall, these results call for regulatory caution in pushing towards centralized stock lending because relatively informed institutional traders may be hesitant to participate in the centralized market to protect their private information.

Keywords: Centralized Stock Lending, OTC Stock Lending, Pricing Efficiency, Short Selling, Short-Sale Constraints

JEL Classification: 12, G14, G18

Suggested Citation

Huszar, Zsuzsa R. and Porras Prado, Melissa, An Analysis of Over-the-Counter and Centralized Stock Lending Markets (February 7, 2017). Available at SSRN: https://ssrn.com/abstract=2324876 or http://dx.doi.org/10.2139/ssrn.2324876

Zsuzsa R. Huszar (Contact Author)

National University of Singapore ( email )

Business School
15 Kent Ridge Drive
Singapore, 117592
Singapore
+65 6516 8017 (Phone)
+65 6779 2083 (Fax)

Central European University ( email )

Nador utca 9
Budapest, H-1051
Hungary

Singapore Management University ( email )

Li Ka Shing Library
70 Stamford Road
Singapore 178901, 178899
Singapore

Melissa Porras Prado

Nova School of Business and Economics ( email )

Campus de Carcavelos
Rua da Holanda 1
Carcavelos, 2775-405
Portugal

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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