← Search

Review of Finance 2026

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

Geir Høidal Bjønnes1; Neophytos Kathitziotis2; Carol Osler3

1 BI Norwegian Business School Department of Finance, , 4 Nydalsveien 37, 0484 Oslo, Norway. +47-46-410-502 · 2 University of Cyprus Department of Accounting and Finance, , P.O. Box 20537, 1678 Nicosia, Cyprus · 3 Brandeis University School of Business and Economics, , 415 South Street, Waltham, MA 02454. 1-781-736-4826

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.

DOI
10.1093/rof/rfag042
Language
en
Sources
openalex crossref

Cite