Dec

6

 We are now 2 decades into the electronic world that does not require people to be at keyboards or to speak and listen to others. Even those of us who never trade now understand that "the bond market" for U.S. Treasuries is not an organized exchange but an over-the-counter market in which all interdealer trades are handled through interdealer brokers (IDBs).

As the post on Liberty Street Economics reminds us, "(u)ntil 1999, nearly all IDB trading occurred through voice-assisted brokers, in which dealers executed trades via phone. In 1999, the eSpeed electronic trading platform was launched, and in 2000, BrokerTec, a rival electronic platform, began operations. These fully electronic platforms paved the way for high-frequency trading, in which traders rely on speed to identify and act upon trading opportunities. The platforms soon accounted for nearly all interdealer trading of the on-the-run notes and bond(s), the most recently issued notes and bond(s) of a given maturity.."

"(I)nformation in high‑frequency markets no longer pertains to only the active side of a trade. Algorithms and dynamic trading strategies enable traders to chop a large order into smaller ones and hide them in the limit order book at various layers. They subsequently show up on the passive side in resultant executions. Thus, estimates of price discovery based on solely trade data are likely to be unreliable."

The Subject Line is a quotation from Numbers 23:23. It was the first message ever sent and received by Samuel Morse's telegraph. (May 24, 1844). Without that invention there would never have been an American Civil War because "the news" of state secessions and Fort Sumter would not have been what "social media" claims to be now: instant and universal.

It seems to me that the paradox of the present situation is that even the loudest news items are now squeaks in the Shannon transmissions of information. "The public" and its money is no longer captured by any single headline.


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1 Comment so far

  1. Will mccabe on December 7, 2018 11:59 am

    This is beautifully written and to the point.

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