Informed Trading and the Dynamics of Client-Dealer Connections in Corporate Bond Markets

Czech, Robert; Pintér, Gábor

doi:10.2139/ssrn.4214084

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Literature Review and Hypothesis Development1

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2023

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“…When it comes to the venue choice between exchanges and dealers, on the one hand, informed traders might send their small orders to as many dealer platforms as possible to conceal their information. Focusing on the dealer market for corporate bonds, Czech and Pinter (2022) show that clients interacting with more dealers perform better compared to those interacting with fewer dealers. The authors argue that this result is in line with the strategy of informed traders carrying out their orders with several dealers to hide their private information.…”

Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%

Costs and benefits of trading with stock dealers: The case of systematic internalizers

Aramian

Nordén

2023

Euro Fin Management

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Systematic internalizers are single‐dealer platforms run by investment firms that trade out of their own inventories by internalizing the trades off exchanges. We analyze the determinants of dealers' market shares and trading costs. We find that dealer trades have lower price impacts than exchange trades, consistent with uninformed traders seeking out dealers. Due to their ability to avoid trading with informed investors, dealers often undercut the exchange bid–ask spread when the spread is wide and the tick size is not binding. Dealers can therefore offer lower trading costs and gain a higher market share relative to exchanges.

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Section: Literature Review and Hypothesis Developmentmentioning

confidence: 99%