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Nasdaq plans "dark pool" for U.S. Treasuries
December 10, 2013 / 6:20 PM / in 4 years

Nasdaq plans "dark pool" for U.S. Treasuries

NEW YORK, Dec 10 (Reuters) - Nasdaq OMX Group plans to create a so-called dark pool for electronic U.S. Treasuries trading where buying and selling interest is not revealed, even on a post-trade basis, the company’s chief executive officer said on Tuesday.

Nasdaq, which runs the No. 2 U.S. equities exchange, closed its $750 million acquisition of eSpeed, an electronic Treasuries-trading platform formerly run by BGC Partners Inc , in July.

Over $500 billion of U.S. Treasuries change hands daily.

For large orders, traders often go through “voice brokers,” who execute trades over the phone, so that the size of the order is not made public, protecting the trader from what would be a competitive disadvantage. Going through a voice broker can be more expensive than trading electronically.

Nasdaq intends to create a dark pool for Treasuries within the eSpeed platform, CEO Robert Greifeld said at a financial services conference held by Goldman Sachs. Dark pools are common in the equities markets and are usually private markets where quotes are not displayed in the broader public markets.

“That is somewhat unique and that represents what essentially is done in the voice world today,” Greifeld said of the plan.

The Treasuries dark pool offers Nasdaq the opportunity to attract more customers and more trades to its platform, thus increasing revenues.

Nasdaq has been focused on upgrading eSpeed’s technology to reduce trading times and on rebuilding relationships with the big banks that use the platform, Greifeld said.

The goal is to get eSpeed’s market share of benchmark Treasuries up to 40 percent from its current share in the low-30 percent range now, he said.

“Just in the past several days, we’ve seen some encouraging signs,” he added.

Nasdaq plans to move eSpeed’s data center to the main Nasdaq data center in Carteret, New Jersey, in the first quarter and then will focus on introducing new products. ESpeed operates a central limit order book that currently trades U.S. Treasury bonds with maturities between 2 years and 30 years that are on-the-run, meaning they are the most recently issued bonds or notes of a particular maturity. In 2014, Nasdaq is looking at bringing off-the-run securities to its platform, Greifeld said.

He said he expects Treasury volumes to increase once the U.S. Federal Reserve begins tapering its $85 billion-a-month bond-buying program, known as quantitative easing, aimed at stimulating the U.S. economy.

“We expect the taper to happen, in our planning, sometime in 2014 - whether that’s December or January, we obviously don’t know, but I think that’s a latent positive for us,” he said.

Nasdaq has no current plans to use eSpeed as a platform to build a swap execution facility (SEF), he said. SEFs are new exchanges for over-the-counter derivatives that are required under the Dodd-Frank financial reforms act, with the aim of making the $633 trillion swaps market more transparent.

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