Staff Reports

The Microstructure of a U.S. Treasury ECN:The BrokerTec Platform

July 2009Number 381
JEL classification: G14, G12, D4, C32

Authors: Michael J. Fleming and Bruce Mizrach

This paper assesses the microstructure of the U.S. Treasury securities market, using newly available tick data from the BrokerTec electronic trading platform. Examining trading activity, bid-ask spreads, and depth for on-the-run two-, three-, five-, ten-, and thirty-year Treasury securities, we find that market liquidity is greater than that found in earlier studies that use data only from voice-assisted brokers. We find that the price effect of trades on BrokerTec is quite small and is even smaller once order-book information is considered. Moreover, order-book information itself is shown to affect prices. We also explore a novel feature of BrokerTec—the ability to enter hidden (“iceberg”) orders—and find that, as predicted by theory, such orders are more common when price volatility is higher.

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