Who Pays the Most to Trade? Cross-client Dispersion in OTC Liquidity Prices

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ID: 328372
2026
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Abstract
Abstract This study analyzes the wide dispersion in bid-ask spreads across clients in over-the-counter (OTC) markets. Our data detailed data comprise a dealing bank's complete trading record in a major OTC contract and include client IDs, seven client types, and precise markups. Average spreads are lowest for hedge funds (<1 basis point, bp) and highest for individuals and for small and medium enterprises (>50 bps). Regression results suggest that the primary source of variation is clients’ execution efficiency, meaning their ability to minimize execution costs. Efficient trading, which can require investments in knowledge and technology, has three dimensions: reliance on low-cost platforms; familiarity with market technologies, conventions, and negotiating strategies; and breadth of dealing relationships. Relations between proxies for client execution efficiency and client incentives to invest, such as trade frequency, are consistent with rational inattention.
Reference Key
openalex_W7212405441 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors Geir Høidal Bjønnes, Neophytos Kathitziotis, Carol Osler
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Journal international review of finance
Year 2026
DOI
10.1093/rof/rfag042
URL
https://doi.org/10.1093/rof/rfag042
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