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Anonymity in Dealer-to-Customer Markets

Author

Listed:
  • Daniela T. Di Cagno

    (Department of Economics and Finance, LUISS Guido Carli, Viale Romania 32, 00197 Rome, Italy)

  • Paola Paiardini

    (Department of Management, Sapienza University of Rome, Via del Castro Laurenziano 9, 00161 Rome, Italy)

  • Emanuela Sciubba

    (Birkbeck Business School, University of London, Malet Street, London WC1E 7HX, UK)

Abstract

We use a laboratory experiment to explore the effect of a change in pre-trade anonymity in a quote-driven dealer-to-customer market, organised as a request for quote (RFQ). We consider two treatments in which dealers interact with two types of customers (informed or uninformed). In the first treatment, there is no anonymity: dealers know whether the customer that sent them the request for quote is informed or uninformed. In the second treatment, there is complete anonymity: dealers do not know the type of customers they are interacting with. We find that anonymity improves price efficiency, whereas it does not adversely impact dealers’ trading profits. Our results contribute to the debate on transparency versus the adoption of anonymity in financial markets.

Suggested Citation

  • Daniela T. Di Cagno & Paola Paiardini & Emanuela Sciubba, 2024. "Anonymity in Dealer-to-Customer Markets," IJFS, MDPI, vol. 12(4), pages 1-16, November.
    • Handle: RePEc:gam:jijfss:v:12:y:2024:i:4:p:119-:d:1533108
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    References listed on IDEAS

    as
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    3. Peter C. Reiss, 2005. "Anonymity, Adverse Selection, and the Sorting of Interdealer Trades," The Review of Financial Studies, Society for Financial Studies, vol. 18(2), pages 599-636.
    4. Michael J. Barclay & Terrence Hendershott & D. Timothy McCormick, 2003. "Competition among Trading Venues: Information and Trading on Electronic Communications Networks," Journal of Finance, American Finance Association, vol. 58(6), pages 2637-2665, December.
    5. Aghanya, Daniel & Agarwal, Vineet & Poshakwale, Sunil, 2020. "Market in Financial Instruments Directive (MiFID), stock price informativeness and liquidity," Journal of Banking & Finance, Elsevier, vol. 113(C).
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