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Social and Behavioral Sciences Commons

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Claremont Colleges

Finance

CMC Senior Theses

Day Clearing Branch

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The Effect Of The Establishment Of The Day Clearing Branch On Trading Costs: A Look At The Nyse In 1920, Samuel W. Wong Jan 2012

The Effect Of The Establishment Of The Day Clearing Branch On Trading Costs: A Look At The Nyse In 1920, Samuel W. Wong

CMC Senior Theses

As a financial institution that clears and settles payments for equity and other securities, a clearinghouse essentially reduces the counterparty risk. It diminishes the risk of one party failing to meet its obligations, and makes markets more efficient through netting. This paper examines the impact of the establishment of the Day Clearing Branch on April 26, 1920, which allowed the NYSE Clearinghouse to net cash values and clear loans, supposedly resulting in savings in banking, time, and labor. The common and preferred equity securities that traded on the NYSE during the year 1920 were analyzed. The effect on bid-ask spreads ...