 WorkupReview of Economic Design, 2014, vol. 18, issue 1, 37-71 Abstract: In pure limit-order markets, the use of large orders is discouraged by potential front-runners. This problem can be mitigated by using expandable orders or iceberg orders, or by splitting a large order into smaller ones. An expandable order gives a trader an option to sequentially expand the size of his trade while holding the price fixed. An iceberg order enables a trader to commit to a maximal trade size at some price, without fully revealing that size to other traders. This paper provides a theoretical model of expandable orders and the accompanying quantity negotiation, called (also by practitioners) the “workup”. The workup is ubiquitous in the U.S. and Canadian bond markets and in over-the-counter markets. The model suggests that even when iceberg orders are available, traders will still use the workup if splitting an order is prohibitively costly, front-running is a threat, and the exchange lacks trust. Copyright Springer-Verlag Berlin Heidelberg 2014 Keywords: Workup, Expandable orders, Front-running, Market microstructure, Market design, D47 (Market Design), D82 (Asymmetric and Private Information; Mechanism Design), D84 (Expectations; Speculations), (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:spr:reecde:v:18:y:2014:i:1:p:37-71 Ordering information: This journal article can be ordered from DOI: 10.1007/s10058-013-0153-y Access Statistics for this article Review of Economic Design is currently edited by Atila Abdulkadiroglu, Fuhito Kojima and Tilman Börgers More articles in Review of Economic Design from Springer, Society for Economic Design |
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