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The microstructure of a U.S. Treasury ECN: the BrokerTec platform

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Abstract

We assess the microstructure of the U.S. Treasury securities market following its migration to electronic trading. We model price discovery using a vector autoregression model of price and order flow. We show that both trades and limit orders affect price dynamics, suggesting that traders also choose limit orders to exploit their information. Moreover, while limit orders have smaller price impact, their greater variation contributes more to the variance of price updates. Lastly, we find increased price impact of trades and especially limit orders following major announcements (such as FOMC rate decisions and macroeconomic data releases), suggesting that the private information derived from public information is disproportionally exploited through limit orders.

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  • Michael J. Fleming & Bruce Mizrach & Giang Nguyen, 2009. "The microstructure of a U.S. Treasury ECN: the BrokerTec platform," Staff Reports 381, Federal Reserve Bank of New York.
    • Handle: RePEc:fip:fednsr:381
    Note: Revised March 2017. For a published version of this report, see Michael J. Fleming, Bruce Mizrach, and Giang Nguyen, “The Microstructure of a U.S. Treasury ECN: The BrokerTec Platform,” Journal of Financial Markets 40, no. 1 (September 2018): 2-22.
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    More about this item

    Keywords

    information; bid-ask spreads; microstructure; Treasury market; price impact;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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