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Strategic OTC market making with reputation feedback

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  • Alexander Barzykin

Abstract

Electronic over-the-counter (OTC) liquidity provision is increasingly shaped not only by the price of the next quote, but also by a dealer's accumulated standing with clients and platforms. We develop a stochastic-control model in which request-for-quote (RFQ) win ratios and streaming fill ratios feed back into future flow through performance-based flow gates, creating an explicit trade-off between immediate spread capture and long-term franchise value. The resulting policy naturally alternates between reputation-building campaigns and franchise monetization phases, and can generate multiple stable client-flow regimes even in a parsimonious single dealer control problem.

Suggested Citation

  • Alexander Barzykin, 2026. "Strategic OTC market making with reputation feedback," Papers 2607.11328, arXiv.org.
    • Handle: RePEc:arx:papers:2607.11328
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    File URL: https://arxiv.org/pdf/2607.11328
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