Staff Reports
The Microstructure of a U.S. Treasury ECN:The BrokerTec Platform
July 2009  Number 381
Revised May 2014
JEL classification: G12, G14, C32

Authors: Michael J. Fleming, Bruce Mizrach, and Giang Nguyen

We assess the microstructure of a U.S. Treasury electronic communications network (ECN) and show that limit orders as well as trades affect prices, with greater effects following announcements by the Federal Open Market Committee. We also find that use of iceberg orders, a form of hidden liquidity, is less common than in equity markets. Using logistic regression, we find support for the hypothesis that iceberg orders are used to prevent information leakage and mitigate adverse selection risk. However, volatility and iceberg order use are negatively linked, likely reflecting market participants’ preference for an alternative channel of hidden liquidity that gives them greater control over order exposure and execution.

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