Staff Reports
Alternative Trading Systems in the Corporate Bond Market
Number 938
August 2020

JEL classification: G14, G23, G28

Authors: Matthew Kozora, Bruce Mizrach, Matthew Peppe, Or Shachar, and Jonathan Sokobin

We investigate the trading of corporate bonds on alternative trading system (ATS) platforms. We draw a key distinction between request-for-quote (RFQ) and electronic communication network (ECN) trading protocols, which balance investors’ preference for immediacy and anonymity. Trades on ATS platforms are smaller and more likely to involve investment-grade bonds. Trades on ATS platforms are more probable for older, less actively traded bonds from smaller issues and for bonds traded by more dealers where inventory is high. Moreover, dealer participation on ATS platforms is associated with lower customer transaction costs of between 24 and 32 basis points.

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AUTHOR DISCLOSURE STATEMENT(S)
Matthew Kozora
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.

Bruce Mizrach
I, Bruce Mizrach, declare that I have no relevant or material financial interests that relate to the research described in this paper. I acknowledge, that prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.

Matthew Peppe
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.

Or Shachar
The author declares that she has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.

Jonathan Sokobin
The author declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.