OTC Discount

69 Pages Posted: 20 Dec 2019

See all articles by Calebe de Roure

Calebe de Roure

Reserve Bank of Australia

Emanuel Moench

Deutsche Bundesbank; Goethe University Frankfurt - Department of Money and Macroeconomics

Loriana Pelizzon

Goethe University Frankfurt - Faculty of Economics and Business Administration; Leibniz Institute for Financial Research SAFE; Ca Foscari University of Venice

Michael Schneider

Deutsche Bundesbank

Date Written: November 6, 2019

Abstract

We study price dispersion and venue choice in the interdealer market for German sovereign bonds, where an exchange and over-the-counter segments coexist. We show that 85% of OTC traded prices are favorable with respect to exchange quotes, indicating the prevalence of an OTC discount. This discount is sizeable and driven by both search and information frictions. More than 75% of volume is transacted via interdealer brokers in trades that are larger, have less price impact, and less discount than comparable bilateral OTC trades. Dealers trade on the exchange for immediacy, highlighting the complementary roles played by the different segments.

Keywords: Market Microstructure,Hybrid Markets,Venue Choice,Interdealer Brokerage,Fixed-Income,OTC Markets,Intermediation Frictions,Search Frictions,Information Frictions

JEL Classification: D4,D47,G1,G14,G24

Suggested Citation

de Roure, Calebe and Moench, Emanuel and Pelizzon, Loriana and Schneider, Michael, OTC Discount (November 6, 2019). Deutsche Bundesbank Discussion Paper No. 42/2019, Available at SSRN: https://ssrn.com/abstract=3507679

Calebe De Roure (Contact Author)

Reserve Bank of Australia ( email )

65, Martin Place
Sydney, NSW 2000
Australia

Emanuel Moench

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany
+49 69 95662312 (Phone)

HOME PAGE: http://https://www.bundesbank.de/en/emanuel-moench

Goethe University Frankfurt - Department of Money and Macroeconomics ( email )

Germany

Loriana Pelizzon

Goethe University Frankfurt - Faculty of Economics and Business Administration ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, D-60323
Germany

Leibniz Institute for Financial Research SAFE ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, 60323
Germany

HOME PAGE: http://www.safe-frankfurt.de

Ca Foscari University of Venice ( email )

Dorsoduro 3246
Venice, Veneto 30123
Italy

Michael Schneider

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
25
Abstract Views
253
PlumX Metrics