Price Discovery in the U.S. Treasury Market: Automation versus Intermediation

Project: Research

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In this project, we would like to examine whether the electronic trading system contributes more to price discovery in the U.S. Treasury market than does the human assisted trading system. In the U.S. Treasury market, virtually all trades between dealers are handled by interdealer brokers. There are two types of interdealer trading systems: electronic and voice-based. In the former, orders are matched electronically, whereas in the latter, orders are placed and trades are executed over the telephone. By interacting with dealers over the phone, a voice broker is able to collect more information and offer more services to participating dealers. In addition, the voice broker can search and negotiate with a compatible trading partner for a dealer to obtain better prices. These services are particularly valuable when order size is large and volume is thin. Trading through voice brokers takes up a larger amount of time but trades may be executed with price improvement. By contrast, electronic brokers offer speedy trading and anonymity, which may encourage informed trading and enhance information efficiency. It remains unclear to what extent each trading system contributes to price discovery in the U.S. Treasury market.


Project number7008123
Grant typeSRG
Effective start/end date1/05/117/03/14