Dealers as Record Keepers

John Chi-Fong Kuong and Vincent Maurin
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John Chi-Fong Kuong: CUHK - The Chinese University of Hong Kong
Vincent Maurin: HEC Paris - Ecole des Hautes Etudes Commerciales

Working Papers from HAL

Abstract: Trading relationships in over-the-counter (OTC) markets are persistent and often exclusive, despite technological advances that have expanded clients' access to dealers. We rationalize this pattern in a model where trading relationships allow dealers to learn their clients' trading motives from their trading records. Relationship dealers set record-contingent quotes, generating price discrimination that mitigates adverse selection for liquidity-driven clients. Moreover, we show that clients prefer exclusive relationships to keep their record private. As a result, post-trade transparency and trading protocols that facilitate public inference of clients' trading records by dealers (e.g., Request for Quote relative to Request for Market) may reduce gains from trade.

Keywords: OTC Markets; Relationship Trading; Trading Record; Transparency (search for similar items in EconPapers)
Date: 2026-05-04
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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-05611119

DOI: 10.2139/ssrn.6165406

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