Which Inter-dealer Market Prevails? An analysis of inter-dealer trading in opaque markets

Working papers set out research in progress by our staff, with the aim of encouraging comments and debate
Published on 21 March 1997

Working paper No. 59
By Victoria Saporta

A common feature of dealeship markets is that dealers have a choice, when dealing with each other, between doing so directly and using an IDB. Using a three stage model we show that, for a dealer who has executed an undisclosed customer trade their choice depends on the number of arms who operate as dealers (market makers). Subject to a monotonicity constraint, a condition is derived determining which form of inter-dealer market will prevail.

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