Quote Competition in Corporate Bonds

Using data on indicative quotes dealers provide to clients, we establish empirical relationships regarding quote competition in the corporate bond market. Market-wide higher quoting activity is associated with greater trading volume and lower trading costs. At the dealer level, quoting dealers attract order flow with more and better quotes attracting more volume. These effects are larger when uncertainty is higher in terms of lower credit ratings and higher volatility, including the onset of Covid-19. Quote competition for order flow is associated with improved execution as clients receive better prices when more dealers quote and when clients trade with better quoting dealers. Our results are consistent with quote competition playing an important role in corporate bond trading.

Keywords: Pretrade transparency, quotes, corporate bonds, OTC markets, order flow competition

JEL Classification: G12, G14, G24

Suggested Citation: Suggested Citation

Hendershott, Terrence J. and Li, Dan and Livdan, Dmitry and Schuerhoff, Norman and Venkataraman, Kumar, Quote Competition in Corporate Bonds (December 4, 2021). SMU Cox School of Business Research Paper No. 22-03, Swiss Finance Institute Research Paper No. 22-70, Available at SSRN: https://ssrn.com/abstract=3982686 or http://dx.doi.org/10.2139/ssrn.3982686