The TRADE 60 | Page 30

[ R E S E A R C H | U S T R E A S U R I E S ] TWO WORLDS COLLIDE: Is the buy-side on a path to the CLOB? 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. 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 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. 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-