Trade Disclosure Regulation in Markets with Negotiated Trades
Posted: 3 Jun 1999
In dealership markets disclosure of size and price details of public trades is typically incomplete. We examine whether full and prompt disclosure of public-trade details improves the welfare of a risk-averse investor. We analyse a model of dealership market where a market maker first executes a public trade and then offsets her position by trading with other market makers. We distinguish between quantity-risk and price-revision risk. We show that if the market maker learns some information about the motive behind public-trade, neither regime is unambiguously welfare superior. This is because greater transparency improves quantity-risk sharing but worsens price-revision risk sharing.
JEL Classification: G12, G14
Suggested Citation: Suggested Citation