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Dealers as Record Keepers

Author

Listed:
  • Maurin, Vincent

    (HEC Paris - Finance Department; Swedish House of Finance)

  • Chi-Fong Kuong, John

    (The Chinese University of Hong Kong (CUHK) - CUHK Business School; Centre for Economic Policy Research (CEPR); Finance Theory Group (FTG))

Abstract

Trading relationships in over-the-counter (OTC) markets are persistent and often exclusive, despite technological advances that have expanded clients' access to dealers. We rationalize this pattern in a model where trading relationships allow dealers to learn their clients' trading motives from their trading records. Relationship dealers set record-contingent quotes, generating price discrimination that mitigates adverse selection for liquidity-driven clients. Moreover, we show that clients prefer exclusive relationships to keep their record private. As a result, post-trade transparency and trading protocols that facilitate public inference of clients' trading records by dealers (e.g., Request for Quote relative to Request for Market) may reduce gains from trade.

Suggested Citation

  • Maurin, Vincent & Chi-Fong Kuong, John, 2026. "Dealers as Record Keepers," HEC Research Papers Series 1626, HEC Paris.
    • Handle: RePEc:ebg:heccah:1626
    DOI: 10.2139/ssrn.6165406
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    Keywords

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    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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