Report

The microstructure of a U.S. Treasury ECN: the BrokerTec platform

Abstract: We assess the microstructure of the U.S. Treasury securities market following its migration to electronic trading. We model price discovery using a vector autoregression model of price and order flow. We show that both trades and limit orders affect price dynamics, suggesting that traders also choose limit orders to exploit their information. Moreover, while limit orders have smaller price impact, their greater variation contributes more to the variance of price updates. Lastly, we find increased price impact of trades and especially limit orders following major announcements (such as FOMC rate decisions and macroeconomic data releases), suggesting that the private information derived from public information is disproportionally exploited through limit orders.

Keywords: information; bid-ask spreads; microstructure; Treasury market; price impact;

JEL Classification: C32; G12; G14;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Staff Reports

Publication Date: 2009-07-01

Number: 381

Note: Revised March 2017. For a published version of this report, see Michael J. Fleming, Bruce Mizrach, and Giang Nguyen, “The Microstructure of a U.S. Treasury ECN: The BrokerTec Platform,” Journal of Financial Markets 40, no. 1 (September 2018): 2-22.