Corporate Bond Trading on an Exchange

An over-the-counter (OTC) market and an open limit order book (LOB) market are the two common mechanisms for organizing financial markets. An OTC is a decentralized market, where trades occur only through dealers. The dealers’ quotes are not fully transparent and are not binding, so customers can shop around and negotiate for the price. An open LOB is a centralized market, where traders submit anonymous orders to a central order book. The quotes are transparent and binding, traders can trade among themselves, and the transactions are transparent as well.

Corporate bonds are traded worldwide mostly in OTC markets while stocks … Read more