Dynamic Order Submission Strategies With Competition Between A Dealer Market And A Crossing Network

The authors present a dynamic microstructure model where a Dealer Market (DM) and a Crossing Network (CN) interact. Sequentially arriving traders with different valuations for an asset maximise their profits either by trading on a DM or by submitting an order for (possibly) uncertain execution via a CN. They develop the analysis for three different informational settings: transparency, "Complete" opaqueness of all order flow, and "Partial" opaqueness (with observable DM trades). A key result is that the interaction of trading systems generates systematic patterns in order flow for the transparency and partial opaqueness settings.