Taking Orders and Taking Notes: Dealer Information Sharing in Treasury Markets

Nina Boyarchenko, David Lucca and Laura Veldkamp

No 22461, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The use of order flow information by financial firms has come to the forefront of the regulatory debate. A central question is: Should a dealer who acquires information by taking client orders be allowed to use or share that information? We explore how information sharing affects dealers, clients and issuer revenues in U.S. Treasury auctions. Because one cannot observe alternative information regimes, we build a model, calibrate it to auction results data, and use it to quantify counter-factuals. We estimate that yearly auction revenues with full-information sharing (with clients and between dealers) would be $5 billion higher than in a "Chinese Wall" regime in which no information is shared. When information sharing enables collusion, the collusion costs revenue, but prohibiting information sharing costs more. For investors, the welfare effects of information sharing depend on how information is shared. Surprisingly, investors benefit when dealers share information with each other, not when they share more with clients. For the market, when investors can bid directly, information sharing creates a new financial accelerator: Only investors with bad news bid through intermediaries, who then share that information with others. Thus, sharing amplifies the effect of negative news. Tests of two model predictions support its key features.

JEL-codes: D44 G1 G14 (search for similar items in EconPapers)
Date: 2016-07
Note: AP EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.nber.org/papers/w22461.pdf (application/pdf)

Related works:
Working Paper: Taking Orders and Taking Notes: Dealer Information Sharing in Treasury Markets (2017)
Working Paper: Taking Orders and Taking Notes: Dealer Information Sharing in Treasury Markets (2016)
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:nbr:nberwo:22461

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w22461

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().