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Trading choices

Author

Listed:
  • Lucas Dyskant
  • Andre C. Siva
  • Bruno Sultanum

Abstract

We propose a model of over-the-counter markets based on three trading methods: principal inventory, agency risk-free, and all-to-all (A2A) trading. Principal and agency trading occur through dealers. A2A trading occurs directly through customer-customer trading. The model predicts that A2A size can remain stable while principal and agency trading change. Higher inventory costs shifts trading from principal to agency and decrease dealers’ net positions. Bid-ask spreads can decrease even though transaction costs increase. High transaction costs can lead to multiple equilibria. The model shows how regulatory and technological changes affect trading choices, stability, and market indicators.

Suggested Citation

  • Lucas Dyskant & Andre C. Siva & Bruno Sultanum, 2025. "Trading choices," Nova SBE Working Paper Series wp675, Universidade Nova de Lisboa, Nova School of Business and Economics.
    • Handle: RePEc:unl:unlfep:wp675
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    More about this item

    Keywords

    Over-the-counter markets; Intermediation costs; Liquidity; Corporate bond markets; Financial market regulations; Post-2008 regulations; Volcker rule;
    All these keywords.

    JEL classification:

    • D53 - Microeconomics - - General Equilibrium and Disequilibrium - - - Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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