Click or Call? Auction Versus Search in the Over-the-Counter Market
University of California, Berkeley - Haas School of Business
September 4, 2012
Journal of Finance, Forthcoming
Over-the-counter (OTC) markets dominate trading in many asset classes. Will electronic trading displace traditional OTC “voice” trading? Can electronic and voice systems coexist? What types of securities and trades are best suited for electronic trading? We study these issues by focusing on an innovation in electronic trading technology that enables investors to simultaneously search many bond dealers. We show that periodic one-sided electronic auctions are a viable and important source of liquidity even in inactively traded instruments. These mechanisms are a natural compromise between bilateral search in OTC markets and continuous double auctions in electronic limit order books.
Number of Pages in PDF File: 41
Keywords: Corporate bonds, electronic trading, auction markets, over-the-counter (OTC) trading
JEL Classification: G10, G20Accepted Paper Series
Date posted: November 19, 2011 ; Last revised: August 13, 2013
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