Staff Reports
Price and Size Discovery in Financial Markets: Evidence from the U.S. Treasury Securities Market
Previous title: “Order Flow Segmentation and the Role of Dark Trading in the Price Discovery of U.S. Treasury Securities”

August 2013 Number 624
Revised: August 2018
JEL classification: G12, G14, G18, G01

Authors: Michael Fleming and Giang Nguyen

We study the workup protocol, an important size discovery mechanism in the U.S. Treasury securities market. We find that shocks in workup order flow explain 6-8 percent of the variation of returns on benchmark notes and, across maturities, contribute 10 percent to the variation of the yield curve level factor. Information related to proprietary client order flow is more likely to show up in workup trades, whereas information derived from public announcements is more likely to come through pre-workup (or “lit”) trades. Our findings highlight how the nature of information affects the trade-off between speed and execution price as informed traders choose between the lit and workup channels.

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