Corporate Bond Trading On A Limit Order Book Exchange
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Corporate Bond Trading on a Limit Order Book Exchange
Author | : Menachem (Meni) Abudy |
Publisher | : |
Total Pages | : 45 |
Release | : 2017 |
Genre | : |
ISBN | : |
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We investigate the trading of corporate bonds (c-bonds) by an open limit order book (LOB) mechanism. To do so, we use the case of the Tel Aviv Stock Exchange (TASE) as a laboratory, in which both stocks and c-bonds are traded by an LOB mechanism. Contrary to the OTC market in the US, the TASE c-bond market is liquid with narrow spreads and low price dispersion. The short-term traders (STT), who are the analog of the market makers in the LOB, have small trading rents and unconcentrated activity (a low Herfindahl index). In the cross-section of bonds, the low concentration is related to low spreads, low price dispersion and small STT rents. The non-STT (including retail investors, whose participation is significant) compete with the STT on quotation and tend to tighter quotes. Retail investors' activity contributes to narrower spreads.
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