Over‐the‐counter (OTC) trading thrives despite competition from exchanges. We let OTC dealers cream skim from exchanges in an otherwise standard Glosten and Milgrom framework. Restricting the dealer's ability to cream skim induces “cheap substitution”: some traders exit while others with larger gains from trade enter. Cheap substitution implies trading costs, trade volumes, and market shares are poor policy indicators. In a benchmark case, restricting the dealer raises welfare only if trading cost increases, volume falls, and OTC market share is high. By contrast, the restriction improves welfare when adverse selection risk is low. A simple procedure implements the optimal Pigouvian tax.

We evaluate the enforcement of China Walls—information barriers within conglomerates. We focus on July 2018, when the SEC tightened enforcement around broker-dealer subsidiaries, and on the 25 million Israeli Shekel trades over 2018–2024. Our difference-in-differences design compares a dealer’s affiliate, connected, and unrelated funds on days when the dealer likely obtained valuable information. Before July 2018, dealers share information with their affiliate and connected funds. After July 2018: the sharing ceases only with the affiliate funds; price discovery slows; trading costs fall for affiliate funds and rise for other funds. Tightly enforced walls eliminated 99.0% of affiliate funds’ event-day profits.