The interdealer market for Treasury securities shares many features with other highly liquid markets that trade electronically using anonymous central limit order books. The interdealer Treasury market, however, contains a unique trading protocol, the so-called workup, that accounts for the majority of interdealer trading volume. While the workup is designed to enhance liquidity in a market with diverse participation, it may also delay certain price-improving order book adjustments and therefore affect price discovery. In this post, we exploit the tight relationship between the ten-year Treasury note traded on the BrokerTec platform and the corresponding Treasury futures contract to explore how the workup protocol affects trading in the interdealer market and to highlight the impact of technological changes on observed trading behaviors.FRBNY — Liberty Street Economics
The Workup, Technology, and Price Discovery in the Interdealer Market for U.S. Treasury Securities
Ernst Schaumburg and Ron Yang
1 comment:
My two cents printed in the wsj back in '13: http://www.wsj.com/articles/SB10001424127887323820104578211663170770852
I was working at eSpeed's (Cantor Fitzgerald) Tokyo office when the electronic Treasury trading screens started in 2000. The 'clearing time' (the time the first buyer or seller finishes executing) that year was 10 seconds, then considered lightning fast (for voice broker dinosaurs like me). That went out the window with HFT, and since then entire trade workups to completion happened in milliseconds.
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