A Preliminary Look at Dealer-to-Customer Markets on October 15, 2014 THE EVOLVING STRUCTURE OF THE U.S. TREASURY MARKET October 20-21, 2015
for internal use only
Treasury Market Structure Two important components of the Treasury market were not covered in the public report Dealer-to-Customer (DtC) market Interest rate swaps and swaptions Limited information available on DtC market activity Request for Quote (RFQ) data (TradeWeb, Bloomberg) Sample Voice data (Ad-hoc survey of select large dealers) Swaps/swaptions trades reported to swap data repositories (SDRs) Participant level transaction & position data reported to CFTC Treasury Market DtC
Inter-Dealer
• RFQ • Voice Sample
• eSpeed • BrokerTec • DealerWeb
Futures • CME
Swaps • SDRs
2
Evidence from Survey of Large Dealers Average Trading Volume by Platform for Large Dealers Ad-hoc survey of select large dealers estimated to represent about half of DtC volume
DtC represents a significant share of volume for large dealers Significant variation in volume shares over time and across dealers Voice trading volume significantly greater than RFQ on most days
DtC volume rose by ~50% on 10/15 while IDB volume rose by 210% Voice trading as a share of DtC volume declined slightly on 10/15 Platform Volume Share on October 15 (Survey Respondents)
Platform Share of Volume on Control Days (Survey Respondents)
IDB
IDB
RFQ
RFQ
Voice
Source: Ad-hoc survey of select large dealers Note: Pie chart represents an average and is not representative of any one dealer
Voice
Source: Ad-hoc survey of select large dealers Note: Pie chart represents an average and is not representative of any one dealer
3
Approximate Intraday DtC Trading Volumes on 10/15 DtC trading volumes were modest relative to IDB volumes and reasonably balanced during the event window No evidence of single large trade or sequence of large trades leading up to or during event window Intra-day pattern represents an estimate as voice data limited to survey respondents % of daily volume
RFQ Trading Statistics RFQ data analyzed from TradeWeb and Bloomberg represents the vast majority of US Treasury RFQ volume 10/15 not an outlier in terms of RFQ volume RFQ Platforms Volume Statistics On-the-run # of Trades 3,120 Control Days Avg Daily Trade Volume ($ millions) 21,951 (April 2-17) Average Trade Size ($ millions) 7.0 # of Trades 5,059 15-Oct Trade Volume 30,736 Average Trade Size 6.1
Off-the-run 4,192 25,403 6.1 5,770 37,420 6.5
Daily RFQ Treasury Volume
10/16/2014
10/15/2014
6/5/2014
4/17/2014
4/16/2014
4/15/2014
4/14/2014
4/10/2014
4/9/2014
4/8/2014
4/7/2014
4/4/2014
4/3/2014
4/2/2014
on-the-run
10/14/2014
Source: Cash RFQ Platforms
4/1/2014
6/20/2013
6/19/2013
seasoned
4/11/2014
$ billions 80 70 60 50 40 30 20 10 0
5
RFQ Platform Volume by Firm Type Significant dealer concentration of RFQ volume Diversity of client flows greater on 10/15 Dealer Volume Share Top 10 Dealers Other Dealers
Control Days 10/15/2014 76.2% 73.9% 23.8% 26.1%
Customer RFQ Volume Share
Source: Cash RFQ Platforms Note: Other includes Corporates, Pension Funds, Sovereign Wealth Funds, Private Equity, Foreign Governments, and Other
# of Requests % of Quotes 3+ ticks from best quote
14% 12% 10% 8% 6% 4% 2% 0%
% of Quotes 3+ ticks from best
Source: Cash RFQ Platforms
8
Summary of Preliminary DtC Analysis DtC market is a significant share of the overall Treasury market Dominated by the largest dealers Voice remains an important mode of trading in DtC segment No outsized trading volume observed during the event window on 10/15
RFQ pricing generally remained tight through the period of peak volatility Temporary widening in RFQ market mirrors widening of dealer quotes in IDB & Futures noted in the Joint Staff Report
Some evidence of dealer pullback in RFQ market during event window Increase in non-competitive quoting
Increased non-response rate Overall, preliminary evidence supports that the DtC market tracked IDB & Futures markets on 10/15 and that the event was not driven by DtC flows 9
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