Alternative Trading Systems in the Corporate Bond Market

34 Pages Posted: 6 Aug 2020

See all articles by Matthew Kozora

Matthew Kozora

Financial Industry Regulatory Authority (FINRA)

Bruce Mizrach

Rutgers University, Department of Economics

Matthew Peppe

Financial Industry Regulatory Authority (FINRA)

Or Shachar

Federal Reserve Bank of New York

Jonathan S. Sokobin

FINRA

Date Written: August 2020

Abstract

We investigate the trading of corporate bonds on alternative trading system (ATS) platforms. We draw a key distinction between request-for-quote (RFQ) and electronic communication network (ECN) trading protocols, which balance investors’ preference for immediacy and anonymity. Trades on ATS platforms are smaller and more likely to involve investment-grade bonds. Trades on ATS platforms are more probable for older, less actively traded bonds from smaller issues and for bonds traded by more dealers where inventory is high. Moreover, dealer participation on ATS platforms is associated with lower customer transaction costs of between 24 and 32 basis points.

Keywords: corporate bonds, TRACE, electronic trading

JEL Classification: G14, G23, G28

Suggested Citation

Kozora, Matthew and Mizrach, Bruce and Peppe, Matthew and Shachar, Or and Sokobin, Jonathan, Alternative Trading Systems in the Corporate Bond Market (August 2020). FRB of New York Staff Report No. 938, Available at SSRN: https://ssrn.com/abstract=3668272 or http://dx.doi.org/10.2139/ssrn.3668272

Matthew Kozora

Financial Industry Regulatory Authority (FINRA) ( email )

Washington, DC
United States

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/

Matthew Peppe

Financial Industry Regulatory Authority (FINRA) ( email )

Washington, DC
United States

Or Shachar (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
(212) 720-6974 (Phone)
(212) 720-1582 (Fax)

Jonathan Sokobin

FINRA ( email )

1735 K Street NW
Washington, DC 20006-1506
United States
(202) 728-8248 (Phone)
(301) 527-4809 (Fax)

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