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Mandatory Disclosure in Oligopolistic Market Making

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  • Seongjin Kim
  • Jin Hyuk Choi

Abstract

We develop a multi-period Kyle-type model that incorporates both mandatory disclosure of informed trades and imperfect competition among market makers. We prove the existence and uniqueness of a linear equilibrium and show that the liquidity-enhancing effect of disclosure is fundamentally linked to the degree of market-making competition. Disclosure lowers trading costs by reducing price impact, and its marginal benefit is strictly larger when competition is weak. We empirically validate this prediction using the 2002 Sarbanes-Oxley Act disclosure reform as a natural experiment. A difference-in-differences analysis of U.S. equities confirms that the spread reduction following enhanced disclosure is significantly larger for stocks with fewer active market makers.

Suggested Citation

  • Seongjin Kim & Jin Hyuk Choi, 2026. "Mandatory Disclosure in Oligopolistic Market Making," Papers 2604.10194, arXiv.org.
    • Handle: RePEc:arx:papers:2604.10194
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    References listed on IDEAS

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