To pool or not to pool? Security design in OTC markets

We study security issuers’ decisions on whether to pool assets when facing counterparties endowed with market power, as is common in over-the-counter markets. Our analysis reveals how buyers’ power may render the pooling of suboptimal — both privately and socially particular, potential gains from trade are large. Pooling then reduces elasticity volume relevant part payoff distribution, exacerbating inefficient rationing associated exercise power. provides insight determinants asset-backed securities issuance, including regulatory reforms affecting financial institutions’ liquidity.