Competition and Information Leakage

75 Pages Posted: 28 Jan 2021 Last revised: 23 Oct 2022

Date Written: October 23, 2022


When seeking to trade in over-the-counter markets, institutional investors typically contact only a small number of potential counterparties and limit information disclosure (e.g., by asking for two-sided rather than one-sided quotes). We rationalize these behaviors in a model featuring endogenous front-running. Although contacting an additional dealer intensifies competition and aids in finding a natural counterparty, it also intensifies information leakage—which can be costly if it helps a losing dealer to front-run. Regarding information design, the client optimally provides no information about her desired trade when soliciting quotes. We also discuss implications for market design and regulation.

Keywords: principal trading, request for quotes (RFQ), information design, price impact, front- running

JEL Classification: D82, D83, G14, G23

Suggested Citation

Baldauf, Markus and Mollner, Joshua, Competition and Information Leakage (October 23, 2022). Available at SSRN: or

Markus Baldauf

University of British Columbia (UBC) - Division of Finance ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2

Joshua Mollner (Contact Author)

Northwestern University - Kellogg School of Management ( email )

2211 Campus Drive
Evanston, IL 60208
United States

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