All-to-All Liquidity in Corporate Bonds

Abstract

We examine technology enabling dispersed investors to directly trade with each other in over-the-counter markets via the largest electronic trading platform in corporate bonds starting Open Trading (OT) to allow investor-to-investor trading. Over our six-year sample, OT steadily grew to win 12% of trades on the platform, with 2% being investor-to-investor trading, 3% being dealers trading with new clients, and 7% being new liquidity providers acting like dealers. This suggests that investors in corporate bonds prefer intermediation to direct trade. However, OT can enable new dealers to compete in liquidity provision. OT's steady growth facilitates measuring its effect on investors, dealers, and competition to provide liquidity using an auction model.