(Bloomberg) — BrokerTec, an electronic-trading platform for U.S. Treasuries, plans this year to roll out improvements to a technology called streaming that’s aimed at smaller financial institutions, according to its parent company, CME Group Inc.
Streaming has existed in foreign exchange for years, and in Treasuries since at least 2017. It allows small institutions that buy and sell mainly to hedge risk to receive a continuous pricing feed from a large bank or trading firm whose main business is market-making, effectively forming a private market.
Streaming purports to deliver better pricing in low-volatility markets than BrokerTec’s main trading platform — its publicly displayed order book, which dates back to the company’s inception in 1999 as a tool for primary dealers. This so-called central limit order book aggregates the best bid and offer prices from all participants, and trading is done anonymously — though it can disadvantage smaller, less sophisticated firms.
“As the market leader in U.S. Treasuries over our central limit order book, it’s important for us to have a strong competitive solution in streaming space as well,” John Edwards, CME’s global head of BrokerTec, said in an interview.
For the purposes of streaming, trading firms are either liquidity providers or liquidity consumers. A liquidity consumer can request a price stream from a provider and receive prices at narrower bid-offer spreads than exist on the central limit order book.
BrokerTec’s streaming capability, launched in mid-2020, has a minimum price increment of one-sixteenth of a 32nd for the most recently issued Treasury notes and bonds. On the central limit order book — a term often shortened to “clob” — minimum price increments range from one-eighth of a 32nd for two-year notes to half a 32nd for notes and bonds maturing in 10 or more years.
At times when the market is very volatile, however, the more diverse liquidity on the clob may mean that pricing is better than in a pricing stream from a single provider.
“Clob and streaming venues have different value propositions which are correlated to market conditions and volatility,” Sean Hodgson, CME executive director, BrokerTec products, said in an interview. “We’re offering the choice of venue to our customers.”
The enhancements CME is making to its BrokerTec Stream product include faster processing times and market data, and new features such as sweepable orders, the company said in a statement.
In building up its streaming capabilities, CME is defending its turf against Tradeweb Markets Inc., whose institutional division Dealerweb began offering direct-stream capabilities in Treasuries to dealers, market-makers and proprietary trading firms in 2017.
Tradeweb acquired a clob last year, when it picked up the interdealer trading business formerly known as eSpeed from Nasdaq Inc.
CME, whose main business is exchange-traded futures and options — including Treasury futures and options — bought BrokerTec in 2018.
Other market competitors in electronic bond trading include MarketAxess Holdings Inc., Fenics and Bloomberg LP, the parent company of Bloomberg News.
More stories like this are available on bloomberg.com
©2022 Bloomberg L.P.
