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pens over the phone or via chats
and instant messaging. A small
number of buy-siders also access
the interdealer market via the
central limit order book (CLOB).
MDPs have been around since
the late 1990s, so it’s no surprise
that buy-side firms looking to get
bids and offers in competition
would turn to them. In fact, when
asked which protocol is preferred,
87% of survey participants point
to request-for-quote (RFQ), the
hallmark of the multi-dealer envi-
ronment. Digging a bit deeper, it’s
reasonable to believe that most
buy-side institutions use a com-
bination of two to three tools to
execute U.S. Treasury securities.
The dispersion of business done
on MDPs versus other venues and
methods is fairly wide. Figure 4
compares the minimum, max-
imum and average of the per-
centage of business directed to
a platform or execution method.
Several participants indicate
32 // TheTrade // Summer 2019
100% of their business was done
via an MDP, thus resulting in the
highest average score of direct-
ed flows (63%). Although fewer
participants indicate they have
access to the interdealer market,
it is notable that, on average,
nearly half of their U.S. Trea-
sury business flows to the likes
of Brokertec (48%). Lastly, the
figure shows that voice trading
isn’t going away any time soon,
as several firms believe they get
better execution and information
when they speak to their broker
directly.
Is buy-side participation in the
CLOB imminent?
It’s difficult to pin down exact-
ly what will move the needle
to make buy-side firms more
accepting of a world beyond RFQ
and voice trading. Some in the in-
dustry suggest executable streams
may be an interim step that is
gaining ground, while others
believe the shift to full electroni-
fication and even automation will
take a more direct path.
The interdealer market for U.S.
Treasury securities is considered
a deeply liquid premier market-
place. According to preliminary
data, 80% of buy-side participants
indicate they would like the
ability to view the CLOB as a tool
to better understand where the
market is trading at any moment
(Figure 5). Half of these partic-
ipants would consider partici-
pating as well. While it seems
intuitive that more information is
better than the point-in-time live
pricing afforded by RFQ and even
request-for-stream protocols, the
differences between the whole-
sale market and the D2C venues
are substantial and present sev-
eral material barriers. Whether
the buy-side is ready to qualify
under the rulebook to participate
and engage in anonymous trading
remains to be seen.