Electronic Trading in OTC Markets vs. Centralized Exchange

Ying Liu, Sebastian Vogel and Yuan Zhang
Additional contact information
Ying Liu: University of Lausanne and Swiss Finance Institute
Yuan Zhang: Ecole Polytechnique Fédérale de Lausanne

No 18-19, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We model a two-tiered market structure in which an investor can trade an asset on a trading platform with a set of dealers who in turn have access to an interdealer market. The investor's order is informative about the asset's payoff and dealers who were contacted by the investor use this information in the interdealer market. Increasing the number of contacted dealers lowers markups through competition but increases the dealers' costs of providing the asset through information leakage. We then compare a centralized market in which investors can trade among themselves in a central limit order book to a market in which investors have to use the electronic platform to trade the asset. With imperfect competition among dealers, investor welfare is higher in the centralized market if private values are strongly dispersed or if the mass of investors is large.

Keywords: OTC markets; RFQ; market design; electronic trading; dealer intermediation (search for similar items in EconPapers)
JEL-codes: D44 D47 D82 G12 G14 (search for similar items in EconPapers)
Pages: 54 pages
Date: 2018-03
New Economics Papers: this item is included in nep-des and nep-mst
References: Add references at CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3013615 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1819

Access Statistics for this paper

More papers in Swiss Finance Institute Research Paper Series from Swiss Finance Institute Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal ().