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

54 Pages Posted: 31 Jul 2009 Last revised: 30 Oct 2018

See all articles by Michael J. Fleming

Michael J. Fleming

Federal Reserve Bank of New York

Bruce Mizrach

Rutgers University, Department of Economics

Giang Nguyen

Pennsylvania State University - Smeal College of Business

Date Written: March 1, 2017

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 a smaller price impact, their greater variation contributes more to the variance of price updates. Lastly, we find an increased price impact of trades and especially limit orders following announcements, suggesting that the private information derived from public information is disproportionally exploited through limit orders.

Keywords: microstructure, Treasury market, bid-ask spread, price impact, information

JEL Classification: G14, G12, D4, C32

Suggested Citation

Fleming, Michael J. and Mizrach, Bruce and Nguyen, Giang, The Microstructure of a U.S. Treasury ECN: The BrokerTec Platform (March 1, 2017). Journal of Financial Markets, Vol. 40, No. September, 2018. Available at SSRN: https://ssrn.com/abstract=1441311 or http://dx.doi.org/10.2139/ssrn.1441311

Michael J. Fleming (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-6372 (Phone)
212-720-1582 (Fax)

HOME PAGE: http://www.newyorkfed.org/research/economists/fleming/

Bruce Mizrach

Rutgers University, Department of Economics ( email )

75 Hamilton Street
New Brunswick, NJ 08901
United States
(848) 932-8636 (Phone)
(732) 932-7416 (Fax)

HOME PAGE: http://snde.rutgers.edu/

Giang Nguyen

Pennsylvania State University - Smeal College of Business ( email )

University Park, PA 16802
United States

HOME PAGE: http://directory.smeal.psu.edu/gxn13

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