When to Introduce Electronic Trading Platforms in Over-the-Counter Markets?

Vogel, Sebastian

doi:10.2139/ssrn.2895222

Cited by 7 publications

(5 citation statements)

References 43 publications

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“…A branch of the literature compares the costs and benefits associated with centralized and decentralized trading structures without endogenous participation decision. See, for example, Geromichalos and Herrenbrueck (2016), Liu, Vogel, and Zhang (2018), Li and Song (2019), Vogel (2019), Glode andOpp (2020), andColliard, Foucault, andHoffmann (2021). Another branch of the literature has studied the trade-off between exclusive participation in a centralized or a decentralized market.…”

Section: Literature Reviewmentioning

confidence: 99%

A Theory of Participation in OTC and Centralized Markets

Dugast

Üslü

Weill

2022

The Review of Economic Studies

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Should regulators encourage the migration of trade from over-the-counter (OTC) to centralized markets? To address this question, we study a model in which banks make costly decisions to participate in an OTC market, a centralized market, or both markets at the same time. Banks differ in their ability to take large positions, what we call their trading capacity. In equilibrium, intermediate-capacity banks find it optimal to participate in the centralized market. In contrast, low- and high-capacity banks find it optimal to participate in the OTC market, due to an endogenous complementarity. Namely, low capacity banks receive worse terms of trade than in the centralized market but better risk sharing, thanks to the intermediation services offered by high-capacity banks. High-capacity banks receive worse risk sharing than in the centralized market, but profit from the provision of intermediation services to low-capacity banks. While the social optimum has qualitatively similar participation patterns, it prescribes that more customers migrate to the centralized market, and that more dealers enter the OTC market.

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Section: Literature Reviewmentioning

confidence: 99%

A Theory of Participation in OTC and Centralized Markets

Dugast

Üslü

Weill

2022

The Review of Economic Studies

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“…This gives more flexibility to introduce a variety of asymmetric information frictions. A branch of the literature provides comparative static analysis, comparing outcomes across exogenously given market structures, some centralized and other decentralized, or across decentralized structures with varying levels of frictions: Biais (1993), Colliard, Foucault, and Hoffmann (2018), Glode and Opp (2019), Malamud and Rostek (2017), , Li and Song (2019), Liu, Vogel, and Zhang (2018) and Vogel (2019).…”

Section: Otc Versus Centralized Tradementioning

confidence: 99%

The Search Theory of OTC Markets

Weill

2020

SSRN Journal

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Section: Literature Reviewmentioning

confidence: 99%

A Theory of Participation in OTC and Centralized Markets

2019

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Should regulators encourage the migration of trade from over-the-counter (OTC) to centralized markets? To address this question, we study a model in which banks make costly decisions to participate in an OTC market, a centralized market, or both markets at the same time. Banks differ in their ability to take large positions, what we call their trading capacity. In equilibrium, intermediate-capacity banks find it optimal to participate in the centralized market. In contrast, low-and high-capacity banks find it optimal to participate in the OTC market, due to an endogenous complementarity. Namely, low capacity banks receive worse terms of trade than in the centralized market but better risk sharing, thanks to the intermediation services offered by high-capacity banks. High-capacity banks receive worse risk sharing than in the centralized market, but profit from the provision of intermediation services to low-capacity banks. While the social optimum has qualitatively similar participation patterns, it prescribes that more customers migrate to the centralized market, and that more dealers enter the OTC market.

show abstract

When to Introduce Electronic Trading Platforms in Over-the-Counter Markets?

Cited by 7 publications

References 43 publications

A Theory of Participation in OTC and Centralized Markets

A Theory of Participation in OTC and Centralized Markets

The Search Theory of OTC Markets

A Theory of Participation in OTC and Centralized Markets

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