Hendrik Bessembinder, William Maxwell, and Kumar Venkataraman
Journal of Financial Economics, Volume 82, 2006, Pages 251-288
Publication year: 2006

We develop a simple model of the effect of public transaction reporting on trade execution costs and test it using a sample of institutional trades in corporate bonds, before and after initiation of the TRACE reporting system. Trade execution costs fell approximately 50% for bonds eligible for TRACE transaction reporting, and 20% for bonds not eligible for TRACE reporting, suggesting the presence of a ‘‘liquidity externality.’’ The key results are robust to changes in variables, such as interest rate volatility and trading activity that might also affect execution costs. Market shares and the cost advantage to large dealers decreased post-TRACE.