Treasury Investors Smile and Dial as 62% of Trades Done by Phone

  • N.Y. Fed releases study of typical April 2014 trading day
  • Wall Street still dominates even as electronic firms gain

Investors in the world’s biggest debt market still use the phone to do most of their trading, a practice that’s nearing extinction in areas like currencies.

Analysts from the Federal Reserve Bank of New York looked at activity in April 2014 and found that 62 percent of the $281 billion that investors traded daily with Wall Street banks was done over the phone, according to a blog post released Friday.

Electronic-trading firms such as Citadel Securities LLC and Virtu Financial Inc. are just now moving to gain a foothold in the segment where dealers trade with investors, although they handle most of the business on platforms restricted to broker-dealers.

The results fit with a 2015 Greenwich Associates survey that found investors did more trading over the phone that year than the year before, in terms of market volume. In contrast, the firm estimates that 24 percent of currencies trading is over the phone.

The New York Fed study also found that Wall Street dealers still dominate trading in Treasuries. The 22 primary dealers that trade with the central bank handled about 68 percent of the $13.2 trillion Treasury market on a typical day in April 2014, or about $345 billion daily.

Regulators’ Challenge

The figures underscore the challenge for U.S. regulators trying to shed more light on the workings of the world’s biggest debt market. Data on trades done by voice -- volume and price, for example -- are only available to the investor and dealer involved in the transaction. That marks a contrast to equity and futures markets, where data on most trades are visible almost instantly, and the corporate debt market, where data is posted publicly within 15 minutes of a trade.

The New York Fed collects statistics on primary dealers’ trades and releases aggregated data about transactions and positioning once a week. The analysts said they may want more routine access to data from inter-dealer platforms like ICAP Plc’s BrokerTec and Nasdaq Inc.’s eSpeed, which is mostly limited to dealers and algorithmic trading firms.

Some of the bond dealers appear to be stepping up algorithmic trading, recent personnel moves indicate. Goldman Sachs Group Inc., UBS Group AG and RBC Capital Markets have named algorithmic-trading specialists to leadership roles in fixed-income trading in the past year.

So the New York Fed also said it may want more data on which investors trade by phone and through various electronic platforms in the market, “to better understand the evolution and importance of different liquidity venues to end investors.”

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