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Taking Orders and Taking Notes: Dealer Information Sharing in Treasury Auctions

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  • Nina Boyarchenko
  • David O. Lucca
  • Laura Veldkamp

Abstract

The use of order-flow information by financial firms has come to the forefront of the regulatory debate. Should a dealer who acquires information by taking client orders be allowed to use or share that information? We explore how information sharing affects dealers, clients, and issuer revenues in US Treasury auctions, in a model calibrated to auction results data, which we use to quantify counterfactuals. Sharing information reduces uncertainty about future value. With less uncertainty, risk-averse bidders bid more. For investors, the welfare effects of information sharing depend on how information is shared and how it affects asymmetry. The model shows that investors can benefit when dealers share information with each other, not when they share more with clients.

Suggested Citation

  • Nina Boyarchenko & David O. Lucca & Laura Veldkamp, 2021. "Taking Orders and Taking Notes: Dealer Information Sharing in Treasury Auctions," Journal of Political Economy, University of Chicago Press, vol. 129(2), pages 607-645.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/711954
    DOI: 10.1086/711954
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    Cited by:

    1. Jason Allen & Milena Wittwer, 2023. "Centralizing Over-the-Counter Markets?," Journal of Political Economy, University of Chicago Press, vol. 131(12), pages 3310-3351.
    2. Lerby Ergun & Andreas Uthemann, 2020. "Strategic Uncertainty in Financial Markets: Evidence from a Consensus Pricing Service," Staff Working Papers 20-55, Bank of Canada.
    3. Gábor Pintér & Chaojun Wang & Junyuan Zou, 2021. "Size Discount and Size Penalty Trading Costs in Bond Markets," Discussion Papers 2114, Centre for Macroeconomics (CFM).
    4. Boyarchenko, Nina & Kovner, Anna & Shachar, Or, 2022. "It’s what you say and what you buy: A holistic evaluation of the corporate credit facilities," Journal of Financial Economics, Elsevier, vol. 144(3), pages 695-731.
    5. Jason Allen & Jakub Kastl & Milena Wittwer, 2020. "Maturity Composition and the Demand for Government Debt," Staff Working Papers 20-29, Bank of Canada.
    6. Di Maggio, Marco & Egan, Mark & Franzoni, Francesco, 2022. "The value of intermediation in the stock market," Journal of Financial Economics, Elsevier, vol. 145(2), pages 208-233.

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