All-to-All Liquidity in Corporate Bonds

57 Pages Posted: 2 Aug 2021 Last revised: 28 Oct 2021

See all articles by Terrence Hendershott

Terrence Hendershott

University of California, Berkeley - Haas School of Business

Dmitry Livdan

University of California, Berkeley

Norman Schuerhoff

Swiss Finance Institute - HEC Lausanne

Multiple version iconThere are 2 versions of this paper

Date Written: October 27, 2021

Abstract

We examine technology enabling dispersed investors to directly trade with each other in over-the-counter markets via the largest electronic trading platform in corporate bonds starting Open Trading (OT) to allow investor-to-investor trading. Over our six-year sample, OT steadily grew to win 12% of trades on the platform, with 2% being investor-to-investor trading, 3% being dealers trading with new clients, and 7% being new liquidity providers acting like dealers. This suggests that investors in corporate bonds prefer intermediation to direct trade. However, OT can enable new dealers to compete in liquidity provision. OT's steady growth facilitates measuring its effect on investors, dealers, and competition to provide liquidity using an auction model.

Keywords: Over-the-counter markets, electronic trading, request for quote, open trading, corporate bonds, dealers

JEL Classification: G12, G14, G19

Suggested Citation

Hendershott, Terrence J. and Livdan, Dmitry and Schuerhoff, Norman, All-to-All Liquidity in Corporate Bonds (October 27, 2021). Swiss Finance Institute Research Paper No. 21-43, Available at SSRN: https://ssrn.com/abstract=3895270 or http://dx.doi.org/10.2139/ssrn.3895270

Terrence J. Hendershott

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

Dmitry Livdan (Contact Author)

University of California, Berkeley ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States
(510) 642-4733 (Phone)

Norman Schuerhoff

Swiss Finance Institute - HEC Lausanne ( email )

Chavannes-près-Renens
Switzerland

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