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

88 Pages Posted: 10 Jan 2017 Last revised: 18 Nov 2019

See all articles by Sebastian Vogel

Sebastian Vogel

Swiss Finance Institute; Ecole Polytechnique Fédérale de Lausanne

Date Written: November 1, 2019

Abstract

I study a hybrid over-the-counter (OTC) market structure in which traders have the choice of obtaining an asset from dealers either in a bilateral market or on an electronic trading platform. In a hybrid market (HM), turnover is higher and traders are better off than in a pure bilateral market (PBM). I present sufficient conditions under which dealer profits are higher in the HM than in the PBM and vice versa. Regulators can improve welfare by mandating electronic trading if search costs on the platform are low. Whether search costs are sufficiently low could be tested, using the model implications.

Keywords: OTC markets, electronic trading, search, market design, efficiency

JEL Classification: D43, D44, D47, D61, D82, D83, G12, G14

Suggested Citation

Vogel, Sebastian, When to Introduce Electronic Trading Platforms in Over-the-Counter Markets? (November 1, 2019). Available at SSRN: https://ssrn.com/abstract=2895222 or http://dx.doi.org/10.2139/ssrn.2895222

Sebastian Vogel (Contact Author)

Swiss Finance Institute ( email )

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

Ecole Polytechnique Fédérale de Lausanne ( email )

EXTRA 127
Quartier UNIL-Dorigny
Lausanne, CH-1015
Switzerland

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
328
Abstract Views
1,976
rank
96,536
PlumX Metrics