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[ R E S E A R C H
TWO WORLDS
COLLIDE:
Is the buy-side on a
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FIG 1: Estimated adoption of electronic trading by asset class: 2001-2018
100
90
80
70
60
50 Equities
40 Futures
30 Options
20 FX (spot FX)
10 Fixed income (U.S Treasuries)
T
he market for U.S. Trea-
sury securities is one of
the most liquid global
financial marketplaces. At the end
of the first quarter of 2019, more
than $621 billion U.S. Treasury
securities traded each day on
average. Over time, the depth and
liquidity of the market enabled
the the adoption of electronic
trading.
As Figure 1 shows, 58% of U.S.
Treasury bonds were transacted
electronically at the end of 2018—
a great achievement considering
a mere 13% of the market traded
electronically in 2001. A jump in
U.S. Treasury e-trading occurred
between 2002 and 2006, along
with other asset classes. After the
initial lift-off, however, the pace
of adoption has since plateaued.
30 // TheTrade // Summer 2019
12%
It’s an RFQ world and we’re just
living in it
Aite Group first attempted to
gauge the degree of e-trading
adoption and the means by which
it happens across various institu-
tions, such as hedge funds, asset
managers, pensions, insurers, and
principal trading firms. Figure 2
describes the percentage of sur-
veyed firms trading U.S. Treasury
securities electronically. Although
some participants indicate they
are transacting all or most of
their U.S. Treasuries by electron-
ic means (38%), many are still
relying on some electronic trading
paired with other methods.
To get a better idea of how buy-
side firms are mixing and match-
ing their executions, participants
were asked to select the number
of methods and venue types they
use. As Figure 3 shows, almost
every buy-side firm surveyed
trades on a multi-dealer platform
(MDP). More than half also still
rely on voice trading, which hap-
38%
FIG 2: Benchmarks are still being
traditionally traded by the buy-side
Percentage of U.S. on-the-run treasuries
traded electronically
Less than
25%
While the vast majority of
interdealer trading takes place
electronically, the dealer-to-cli-
ent (D2C) market has lagged. In
a partnership with The TRADE
magazine, Aite Group reached out
to buy-side institutions to gain
insight around the adoption of
electronic trading of U.S. Treasury
bonds. Preliminary data suggests
there are some encouraging signs.
However, human psychology and
market infrastructure may scale
back the breakaway from tradi-
tional dealing.
Audrey Blater, senior analyst at Aite Group, examines the preliminary results
of a recent survey of trends in the US Treasury market and finds that the
buy-side attitudes towards a Central Limit Order Book are shifting.
0%
25%
More that 75%
25% to 50%
25%
FIG 3: MDP’s remain the go-to for
U.S. treasury transactions
U.S. Treasury E-Trading preferred
venues and methods
51% to 75%
4 15 4 5 8
Single-dealer
platforms (SDP’s) MDP’s Interdealer market Messaging (FIX) Voice
Issue 60 // TheTradeNews.com // 31