Asset Dissemination Through Dealer Markets

Abstract

In over-the-counter markets for assets such as bonds or securitizations, large volumes can be split into smaller pieces and gradually sold to several final investors with the intermediation of multiple dealers. This paper proposes a model to study this process, called “asset dissemination”. A dealer buys several units of an asset from a customer, then sells some units to his customers and to a second dealer, who sells to his customers and a third dealer, and so on. The extent of dissemination is measured by the number of dealers involved and the total customer demand served. We show that asymmetric information on customer demand hinders both dimensions of dissemination. We also study how the quantity to disseminate and the dealers’ funding costs impact dissemination and the prices and quantities in interdealer transactions.

Keywords: intermediation chains, liquidity, OTC markets, dealer markets

JEL Classification: C78, D85, G21, G23