English, Article, Journal or magazine article edition: Preferencing, internalization and inventory position Lescourret, Laurence; Robert, Christian Y.

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Bookmark: http://trove.nla.gov.au/version/169817
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Preferencing, internalization and inventory position
Author
  • Lescourret, Laurence
  • Robert, Christian Y.
Physical Description
  • preprint
Notes
  • We present a model of market-making in which dealers differ by their current inventory positions and by their preferencing agreements. Under preferencing, dealers receive captive orders that they guarantee to execute at the best price. We show that preferencing raises the inventory holding costs of preferenced dealers. In turn, competitors post less aggressive quotes. Since price-competition is softened, expected spreads widen. The entry of unpreferenced dealers, or the ability to route preferenced orders to best-quoting dealers, as internalization does restore price competitiveness. We also show that a greater transparency may negatively affect expected spreads, depending on the scale of preferencing.
  • Internalization; Inventory Control; Market Microstructure; Preferencing; Transparency
  • RePEc:ebg:essewp:dr-06017
Language
  • English
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