Pre-Trade Transparency in Over-the-Counter Bond Markets
55 Pages Posted: 4 Mar 2012 Last revised: 3 Nov 2018
Date Written: June 27, 2016
Using bond transaction data from TRACE from 2005 to 2015, we investigate the impact of pre-trade transparency on over-the-counter bond markets, and find that NYSE pre-trade transparency reduces US corporate bond transaction costs by $846 million per year. NYSE pre-trade transparent bonds also maintain smaller standard deviation in bid-ask spreads and institutional investors face smaller bid-ask spreads when trading the pre-trade transparent bonds, suggesting that pre-trade transparency tends to favor traders rather than dealers by enhancing traders’ bargaining capability.
Keywords: Pre-trade transparency; OTC bond markets; Bond transaction cost
JEL Classification: G14; G19
Suggested Citation: Suggested Citation