We analyze how the anonymous trading of uninformed agents affects the characterization of security market equilibrium. We show that the degree of anonymity provided by a market alters the distribution of wealth across agents, the depth of the market, and the incentive agents have to acquire private information about a security's fundamental value. Moreover, the nature of these effects depends on the type of information about uninformed trading that is revealed to market participants. Our results have implications for sunshine trading, dual trading, brokerage relationships, automation and decentralization of markets, and firms' security listing choices. G10, L10.

In this paper we analyze how depositors can employ both monitoring and capital requirements to control the risk of bank assets. We also analyze how monitors should be compensated if their actions are not directly observable and if there are binding limits on their liability. Second-best capital and monitoring levels (with unobservable actions) will be distorted away from their respective first-best levels. We derive some results about the nature of these distortions and characterize the optimal incentive scheme for monitors.