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

Michael J. Fleming; Bruce Mizrach; Giang Nguyen

doi:10.1016/j.finmar.2017.05.004

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

Michael J. Fleming, Bruce Mizrach, Giang Nguyen

School of Arts and Sciences, Economics

Rutgers, The State University

Research output: Contribution to journal › Article › peer-review

15 Scopus citations

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 a smaller price impact, their greater variation contributes more to the variance of price updates. Lastly, we find an increased price impact of trades and especially limit orders following announcements, suggesting that the private information derived from public information is disproportionally exploited through limit orders.

Original language	American English
Pages (from-to)	2-22
Number of pages	21
Journal	Journal of Financial Markets
Volume	40
DOIs	https://doi.org/10.1016/j.finmar.2017.05.004
State	Published - Sep 2018

ASJC Scopus subject areas

Finance
Economics and Econometrics

Keywords

Bid-ask spread
Information
Microstructure
Price impact
Treasury market

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10.1016/j.finmar.2017.05.004

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title = "The microstructure of a U.S. Treasury ECN: The BrokerTec platform",

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 a smaller price impact, their greater variation contributes more to the variance of price updates. Lastly, we find an increased price impact of trades and especially limit orders following announcements, suggesting that the private information derived from public information is disproportionally exploited through limit orders.",

keywords = "Bid-ask spread, Information, Microstructure, Price impact, Treasury market",

author = "Fleming, {Michael J.} and Bruce Mizrach and Giang Nguyen",

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AU - Mizrach, Bruce

AU - Nguyen, Giang

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N2 - 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 a smaller price impact, their greater variation contributes more to the variance of price updates. Lastly, we find an increased price impact of trades and especially limit orders following announcements, suggesting that the private information derived from public information is disproportionally exploited through limit orders.

AB - 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 a smaller price impact, their greater variation contributes more to the variance of price updates. Lastly, we find an increased price impact of trades and especially limit orders following announcements, suggesting that the private information derived from public information is disproportionally exploited through limit orders.

KW - Bid-ask spread

KW - Information

KW - Microstructure

KW - Price impact

KW - Treasury market

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JO - Journal of Financial Markets

JF - Journal of Financial Markets

ER -

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

Abstract

ASJC Scopus subject areas

Keywords

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