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Report
Alternative Trading Systems in the Corporate Bond Market
We investigate the trading of corporate bonds on alternative trading system (ATS) platforms. We draw a key distinction between request-for-quote (RFQ) and electronic communication network (ECN) trading protocols, which balance investors’ preference for immediacy and anonymity. Trades on ATS platforms are smaller and more likely to involve investment-grade bonds. Trades on ATS platforms are more probable for older, less actively traded bonds from smaller issues and for bonds traded by more dealers where inventory is high. Moreover, dealer participation on ATS platforms is associated with ...
Discussion Paper
Treasury Market When-Issued Trading Activity
When the U.S. Treasury sells a new security, the security is announced to the public, auctioned a number of days later, and then issued sometime after that. When-issued (WI) trading refers to trading of the new security after the announcement but before issuance. Such trading promotes price discovery, which may reduce uncertainty at auction, potentially lowering government borrowing costs. Despite the importance of WI trading, and the advent of Treasury trading volume statistics from the Financial Industry Regulatory Authority (FINRA), little is known publicly about the level of WI activity. ...
Discussion Paper
Breaking Down TRACE Volumes Further
Following an earlier joint FEDS Note and Liberty Street Economics blog post that examined aggregate trading volume in the Treasury cash market across venues, this post looks at volume across security type, seasoned-ness (time since issuance), and maturity. The analysis, which again relies on transactions recorded in the Financial Industry Regulatory Authority's (FINRA) Trade Reporting and Compliance Engine (TRACE), sheds light on perceptions that some Treasury securities—in particular those that are off-the-run—may not trade very actively. We confirm that most trading volume is made up of ...
Working Paper
Price Discovery in the U.S. Treasury Cash Market: On Principal Trading Firms and Dealers
We explore the following question: does the trading activity of registered dealers on Treasury interdealer broker (IDB) platforms differ from that of principal trading firms (PTFs), and if so, how and to what effect on market liquidity? To do so, we use a novel dataset that combines Treasury cash transaction reports from FINRA’s Trade Reporting and Compliance Engine (TRACE) and publicly available limit order book data from BrokerTec. We find that trades conducted in a limit order book setting have high permanent price impact when a PTF is the passive party, playing the role of ...
Discussion Paper
Unlocking the Treasury Market through TRACE
The U.S. Treasury market is widely regarded as the deepest and most liquid securities market in the world, playing a critical role in the global economy and in the Federal Reserve’s implementation of monetary policy. Despite the Treasury market’s importance, the official sector has historically had limited access to information on cash market transactions. This data gap was most acutely demonstrated in the investigation of the October 15, 2014, flash event in the Treasury market, as highlighted in the Joint Staff Report (JSR). Following the JSR, steps were taken to improve regulators’ ...
Speech
Market and funding liquidity: an overview, remarks at the Federal Reserve Bank of Atlanta 2016 Financial Markets Conference, Fernandina Beach, Florida, May 2016
Remarks at the Federal Reserve Bank of Atlanta 2016 Financial Markets Conference, Fernandina Beach, Florida.