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

67 Pages Posted: 26 Sep 2016 Last revised: 12 Feb 2018

See all articles by Nina Boyarchenko

Nina Boyarchenko

Federal Reserve Bank of New York

David O. Lucca

Federal Reserve Banks - Federal Reserve Bank of New York

Laura Veldkamp

Columbia University - Columbia Business School; National Bureau of Economic Research (NBER)

Multiple version iconThere are 3 versions of this paper

Date Written: September 2016

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 would be $2.4 billion higher with full-information sharing with clients and between dealers. When information sharing enables collusion, the collusion costs revenue; but if dealers share information with clients, prohibiting information sharing may cost more. For investors, the welfare effects of information sharing depend on how information is shared. The model shows that investors can benefit when dealers share information with each other, not when they share more with clients.

Keywords: asymmetric information, auctions, Financial Intermediation, Treasury

Suggested Citation

Boyarchenko, Nina and Lucca, David O. and Veldkamp, Laura, Taking Orders and Taking Notes: Dealer Information Sharing in Treasury Markets (September 2016). Available at SSRN: https://ssrn.com/abstract=2843537

Nina Boyarchenko (Contact Author)

Federal Reserve Bank of New York ( email )

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David O. Lucca

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
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Laura Veldkamp

Columbia University - Columbia Business School ( email )

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New York, NY 10027
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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