I am an Associate Professor of Finance at Warwick Business School of the University of Warwick.
I am a member of the Finance Theory Group.
My research interests include Financial Intermediation, Market Microstructure and FinTech.
I hold Ph.D. in Finance from the Wharton School of the University of Pennsylvania and MA in Economics from New Economic School.
E-mail: ruslan.sverchkov@wbs.ac.uk
Utility Tokens as a Commitment to Competition with Itay Goldstein and Deeksha Gupta.
Journal of Finance 79, December 2024, pp. 4197-4246
Abstract
We show that utility tokens can limit the rent-seeking activities of two-sided platforms with market power while preserving efficiency gains due to network effects. We model platforms where buyers and sellers can meet to exchange services. Tokens serve as the sole medium of exchange on the platform and can be traded in a secondary market. Tokenizing a platform commits a firm to give up monopolistic rents associated with the control of the platform leading to long-run competitive prices. We show how the threat of entrants can incentivize developers to tokenize and discuss cases where regulation is needed to enforce tokenization.
To Pool or Not to Pool? Security Design in OTC Markets with Vincent Glode and Christian C. Opp.
Journal of Financial Economics 145(2), August 2022, pp. 508-526
Abstract
We study security issuers' decision whether to pool assets when facing counterparties endowed with market power, as is common in over-the-counter markets. Our analysis reveals how buyers' market power may render the pooling of assets suboptimal — both privately and socially — in particular, when the potential gains from trade are large. Pooling assets then reduces the elasticity of trade volume in the relevant part of the payoff distribution, exacerbating inefficient rationing associated with the exercise of buyers' market power. Our analysis sheds light on the determinants of asset-backed securities issuance, including regulatory reforms affecting financial institutions' liquidity.
Incentives to Lose: Disclosure of Cover Bids in OTC Markets with Andrey Ordin.
Abstract
We rationalize widespread disclosure of unexecuted quotes in over-the-counter financial markets in which price transparency is mandated. In our model, investors make post-trade disclosure and dealers learn about competitors from revealed data. We show that transparency of transaction data alone incentivizes dealers to lose trade. Investors often correct this by sharing the runner-up quote — the cover — with the dealer executing trade. Revealing unexecuted quotes, however, is not always optimal: investors conceal covers if they trade frequently, dealers’ valuations are asymmetric, or dealers’ uncertainty about competitors is low. Investors’ choices have implications for policy, market fragmentation, and design of trading platforms.
Multimarket Contact and the Cost of Trading Corporate Bonds with Marco Grotteria, Andreas C. Rapp, and Ram Yamarthy.
Abstract
We show that multimarket contact (MMC)—the extent to which the same dealers interact across many securities—disciplines pricing in corporate bond markets. In a repeated-game model, where dealers alternate between supplying and demanding liquidity, a dealer that is tempted to widen spreads for a short-run gain is deterred by the prospect of facing wider spreads when next demanding liquidity. MMC pools this discipline across securities: a deviation in one triggers retaliation in the others. The model predicts that higher MMC for one dealer lowers spreads for all dealers active in that bond, with the largest effects when adverse selection is high or trading is infrequent. Using TRACE data, we exploit within-bond-month variation across dealers and within-dealer-month variation across bonds. Higher MMC compresses interdealer spreads, with reductions passed through to customers. A shift–share instrument based on the sharp increase in investment-grade bond issuance during COVID confirms the result.
An Economic Model of the L1-L2 Interaction with Campbell R. Harvey and Fahad Saleh.
Abstract
An L1-L2 blockchain ecosystem combines high transaction throughput with secure asset settlement, making it likely to play a central role in the migration of financial markets to blockchain-based infrastructure. We provide an economic model of endogenous financial activity within an L1-L2 ecosystem to assess its potential economic value. We demonstrate that liquidity provision and trading volume are likely to migrate from L1 to L2, potentially leading to a situation where L1 is unable to support any meaningful activity alongside L2. Crucially, because the security of an L1-L2 ecosystem is anchored in the L1, reductions in L1 financial activity may weaken the overall system’s security. We characterize the conditions under which this outcome arises and show that sufficiently low L1 settlement fees allow L1 and L2 activity to coexist.
Selling to Investor Network: Allocations in the Primary Corporate Bond Market.
Abstract
I develop a model of the primary market for corporate bonds, in which an issuer optimally chooses an issuance price and allocations to investors based on their trading connections in the secondary over-the-counter market. Expected secondary market liquidity, which depends on the structure of the trading network in this market, determines investors' demands in the primary market and, in turn, the issuer's revenues. I show that trading by less connected investors has a relatively high negative impact on expected secondary market liquidity and disproportionately reduces the demands of all investors in the primary market. As a result, the issuer can increase her profits by restricting allocations of new bonds only to more connected investors. This explains the commonly observed exclusion of small institutional investors from the primary market, which is often coupled with seemingly underpriced bonds.