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This analytical note assesses the prevalence of liquidity provision by institutional investors in Canadian bonds. We find that the practice is not prevalent in Canada. Customer liquidity provision is more prevalent for less liquid bonds, on days when liquidity is already expensive or when there are larger trading volumes. In our interpretation, Canadian dealers draw on customer liquidity as a supplementary source of liquidity and only when necessary, given its cost.

Technology, risk tolerance and regulation may influence dealers to reduce their trading as principals (using their own balance sheets for sales and purchases of securities) in favour of agency trading (matching client trades).