Security Design in Non-Exclusive Markets with Asymmetric Information

Abstract We study the problem of a seller (e.g. bank) who is privately informed about quality her asset and wants to exploit gains from trade with uninformed buyers investors) by issuing securities backed cash flows. In our setting, post menus contracts screen seller, but cannot commit only one buyer, i.e. markets are non-exclusive. show that non-exclusive behave very differently exclusive ones: (1) separating never part equilibrium; (2) mispricing claims faced always greater than in markets; (3) there semi-pooling equilibrium where all sellers issue same debt contract priced at average-valuation, low-quality assets remaining flows low-valuation; (4) market liquidity can be higher or lower markets, (5) average originated lower. Our model’s predictions consistent empirical evidence on issuance pricing mortgage-backed securities, we use theory evaluate recent reforms aimed enhancing transparency exclusivity markets.