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

72 Pages Posted: 10 Jan 2017 Last revised: 7 Mar 2017

Sebastian Vogel

Ecole Polytechnique Fédérale de Lausanne - Ecole Polytechnique Fédérale de Lausanne

Date Written: March 7, 2017

Abstract

I study a hybrid over-the-counter (OTC) market structure in which traders have the choice of obtaining an asset either in a bilateral market or on an electronic trading platform. In a hybrid market (HM), turnover is higher and expected prices are lower than in a pure bilateral market (PBM). I present sufficient conditions under which dealers' profits are higher in the HM than in the PBM and vice versa. Dealers can increase their profits in the HM by colluding to keep their activity on the platform at a certain level.

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? (March 7, 2017). Available at SSRN: https://ssrn.com/abstract=2895222 or http://dx.doi.org/10.2139/ssrn.2895222

Sebastian Vogel (Contact Author)

Ecole Polytechnique Fédérale de Lausanne - Ecole Polytechnique Fédérale de Lausanne ( email )

Quartier UNIL-Dorigny, Bâtiment Extranef, # 211
40, Bd du Pont-d'Arve
CH-1015 Lausanne, CH-6900
Switzerland

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