Centralizing Over-the-Counter Markets?

78 Pages Posted: 19 Mar 2021 Last revised: 3 Jan 2022

See all articles by Milena Wittwer

Milena Wittwer

European University Institute; Stanford University; Boston College

Jason Allen

Government of Canada - Bank of Canada

Date Written: February 23, 2021


In traditional over-the-counter markets, investors trade bilaterally through intermediaries (dealers). We assess whether and how to shift trades onto a centralized platform with trade-level data on the Canadian government bond market. We show that investors who have access to a platform pay better prices than investors who do not, and specify a model to quantify price and welfare effects from making platform access universal. We find that not all investors would use the platform---it is costly, dealer competition is low, and investors value close relationships with dealers. Removing platform fees or increasing dealer competition can increase welfare by 22%.

Keywords: OTC markets, platforms, demand estimation, government bonds

JEL Classification: D40, D47, G10, G20, L10

Suggested Citation

Wittwer, Milena and Wittwer, Milena and Allen, Jason J., Centralizing Over-the-Counter Markets? (February 23, 2021). Available at SSRN: https://ssrn.com/abstract=3791655 or http://dx.doi.org/10.2139/ssrn.3791655

Milena Wittwer (Contact Author)

European University Institute ( email )

Villa Schifanoia
133 via Bocaccio
Firenze (Florence), Tuscany 50014

Stanford University ( email )

Stanford, CA 94305
United States

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Jason J. Allen

Government of Canada - Bank of Canada ( email )

Ottawa, Ontario K1A 0G9

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