A major change in trading conventions in April 2009, the so-called โCDS Big Bang,โ induces upfront fees for trading North American CDSs. Exploiting this quasi-experiment, we provide evidence that upfront fees have a differential effect on CDS bid-ask spreads across CDS premiums. Furthermore, the funding effect is stronger for CDS contracts on smaller and riskier firms, contracts with longer maturities, and non-centrally-cleared contracts. The effect also becomes stronger after Deutsche Bank exits the CDS market. Finally, we find similar results using European CDSs. Our experimental setting offers new economic insights on the quantification and mechanism of the funding liquidity effect
