We propose a new model of interdeal

We propose a new model of interdealer trading. Dealers trade together to reducetheir inventory holding costs. Core dealers share these costs efficiently and provideliquidity to peripheral dealers, who have heterogeneous access to core dealers. Wederive predictions about the effects of peripheral dealers’ connectedness to core deal-ers and the allocation of aggregate inventories between core and peripheral dealerson the distribution of interdealer prices, the efficiency of interdealer trades, and trad-ing costs for the dealers’ clients. For instance, the dispersion of interdealer pricesis higher when fewer peripheral dealers are connected to core dealers or when theiraggregate inventory is higher.