The majority of bond trading around the world takes place in over-the-counter (OTC) markets where liquidity is provided by a relatively small number of financial institutions (dealers), who use their balance sheets to intermediate trades. This is in stark contrast to stock markets, where trading is mainly done on exchange-based central limit order books (CLOBs), which are fully transparent and facilitate all-to-all trading. Why is there such a discrepancy between bonds and stocks? And could more bonds also be traded on exchange-based CLOBs, whereby any market participant (including dealers) would provide liquidity in a more transparent and competitive environment? This report argues that further centralising bond trading, by encouraging larger parts of the bond market to move onto transparent all-to-all platforms, such as exchange-based CLOBs, is not only feasible, but will also likely improve bond market functioning and will benefit the wider financial system.

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