Do we need dealers in OTC markets?

Schürhoff, Norman, Dmitry Livdan and Terrence Hendershott
Authors registered in the RePEc Author Service: Norman Schuerhoff

No 16437, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We examine technology enabling dispersed investors to directly trade with each other in over- the-counter markets via the largest electronic trading platform in corporate bonds starting Open Trading (OT) to allow investor-to-investor trading. Over our six year sample OT steadily grew to win 12% of trades on the platform, with 2% being investor-to-investor trading, 3% being dealers trading with new clients, and 7% being new liquidity providers acting like dealers. This suggests that investors in corporate bonds prefer intermediation to direct trade. However, OT can enable new dealers to compete in liquidity provision. OT’s steady growth facilitates measuring its effect on investors, dealers, and competition to provide liquidity using an auction model.

Keywords: Over-the-counter markets; Electronic trading; Request for quote; Open trading; Corporate bonds; Dealers (search for similar items in EconPapers)
JEL-codes: G12 G14 G19 (search for similar items in EconPapers)
Date: 2021-08
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Working Paper: Do we need dealers in OTC markets? (2021)
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