When seeking to trade in over-the-counter markets, institutional investors typically contact only a small number of potential counterparties and limit information disclosure (e.g., by asking for two-sided rather than one-sided quotes). We rationalize these behaviors in a model featuring endogenous front-running. Although contacting an additional dealer intensifies competition and aids in finding a natural counterparty, it also intensifies information leakage—which can be costly if it helps a losing dealer to front-run. Regarding information design, the client optimally provides no information about her desired trade when soliciting quotes. We also discuss implications for market design and regulation.
delegation principal trading request for quotes (RFQ) information design price impact front- running