Tomy Lee

Assistant Professor, Economics and Business, Central European University

Research Interests: Design of Financial Markets, Over-the-Counter Markets, Applied Theory

CV: Click Here

Contact: leeso[at]


Review of Economic Dynamics (Special Issue on Fragmented Financial Markets; available:

I examine the impact of cross-venue latency on market quality using a model of informed trader competition in a fragmented market. As cross-venue latency decreases, liquidity and price discovery improve while the expected profits of informed traders decline. Moreover, a fall in the latency of one venue can harm liquidity at the other venue. An extension predicts that, as the informed traders consolidate or outsource trading, benefits of shorter cross-venue latency are attenuated and its harmful effects intensify. My model generates testable predictions about the effects of changes in cross-venue latency on market quality.

Working Papers

(with Chaojun Wang)

Conference Presentations: AFA 2020, FML Budapest 2019, 2018: AMES, ASSA, CBC Hong Kong, EFA, EUROfidai

We show that trading over-the-counter is privately optimal yet can harm welfare even if its prices were competitive. Dealers price discriminate to the benefit of traders who are less likely to be informed, thereby cream-skimming them into the OTC market and leaving adverse selection risk concentrated on exchanges. Traders who are induced to trade by better OTC prices have smaller gains from trade than those who exit due to worse prices on the exchanges. Therefore, the entrants are mere “cheap substitutes” for the exiters, rendering trade volume and bid-ask spreads poor indicators of welfare. We also document and explain a positive correlation between the exchanges’ spread and their market share. Given this pattern, perhaps surprisingly, we show that allowing OTC trading harms welfare for assets that are mostly OTC-traded, such as swaps.

Works in Progress

Optimal Tick Size

(with Corey Garriott)