Will Intermediate for Data: Information Sharing in U.S. Treasury Auctions
Event details
| Date | 02.10.2015 |
| Hour | 10:30 › 12:00 |
| Speaker | Nina BOYARCHENKO (Federal Reserve Bank of New York) |
| Location | |
| Category | Conferences - Seminars |
According to most financial intermediation theories, the prevalence of primary dealers is puzzling. They do not transform liquidity or maturity; they do not screen and monitor borrowers or diversify fiscal policy risk. Yet, most end investors place their Treasury auction bids through an intermediary rather than submit them directly. Motivated by this evidence, we explore a new model of intermediaries as advisors. Intermediaries observe each client's order flow, aggregate that information across clients, and use it to advise their clients as a group. Although informationsharing is often maligned, it typically increases treasury revenue, but also makes revenue more variable. When bidders can choose whether or not to bid through a dealer, a new financial accelerator emerges. We use the model to examine current policy questions, such as the optimal number of intermediaries, the effect of nonintermediated bids, and minimum bidding requirements.
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