Cboe has gone live with cash Treasury trading, the first trade having been conducted in mid-October. It is operating a ‘Full Amount’ execution protocol based on its Cboe FX offering, which is designed to support large order risk transfer with low impact, and will be used together with Cboe’s liquidity curation and analytics capabilities.
Ben Leit, global head of FX & FI sales at Cboe Global Markets, says that the model is designed to overcome existing structural problems in the US Treasuries market.
“There are a lot of market makers in US Treasuries, the problem is that active trading venues operate as sweepable order books of liquidity,” he says. “There’s a liquidity mirage, because the market is not always as deep as it first appears. Our Full Amount protocol addresses that because it is real size that you can get done. If you are a consumer of liquidity, and you send an order for US$50 million, you match with one counterparty for your full amount. You’re still getting streaming prices from all of our market makers, we’re aggregating at the top of book. That helps the liquidity provider, because in the sweepable markets, they have to be defensive on the price. In a full-amount environment, when you know you’re getting the full ticket, they can price much more aggressively.”
He notes that the firm has also brought in other functionality from the FX side of the business, to ensure dealer-client relationship can be effectively managed through tailored liquidity and pricing.
“Included within our protocol is liquidity management, which comes from the FX world,” he says. “As a liquidity provider, that allows you to price different clients differently. We help clients with that using our quantitative analytics.”
The core client base tends to be more actively trading market participants, he says, with Cboe’s experience in other assets classes giving it a wide network of firms familiar with its operations.
The firm has started with firms that are members of the DTCC’s subsidiary, Fixed Income Clearing Corporation (FICC), the Government Securities Division (GSD) of which provides real-time trade matching, clearing, risk management and netting for trades in US Government debt issues, including repurchase agreements (repos).
“Having only FICC members does remove some of the counterparty risk elements,” he says. “We want to address that and service that client group, so razor-focused on the solution for our addressable market, where some competitors have a wider scope of clients. We’ll see as our product matures if it makes sense to open up the pool to a larger range of clients, but first, we really want to use our product to help FICC members.”
©Markets Media Europe 2023
