NEW YORK Oct 13 U.S. Treasuries dealers have cut back their market-making activities on interdealer systems, as high frequency trading firms have ramped up their presence in this area of bond trading, according to a private survey released on Tuesday.
Of the top 10 firms on major inter-dealer platforms, including ICAP's BrokerTec and Nasdaq's eSpeed, only two are primary dealers, while the rest are non-bank outfits and primarily principal trading firms such as KCG and Virtu Financial, Greenwich Associates said.
There are currently 22 primary dealers or top Wall Street firms that do business directly with the Federal Reserve.
More than a decade ago, Wall Street dealers were the dominant market-makers of Treasuries on interdealer platforms, according to Kevin McPartland, Greenwich's head of market structure and Technology Research.
"The landscape has really changed on who are now the liquidity makers and who are the liquidity takers," McPartland said.
In the week ended Sept. 30, primary dealers on average traded $212.7 billion a day in Treasuries with other dealers, and $296.7 billion a day with other market participants, according to data from the New York Fed.
Greenwich's findings support the view of the Federal Reserve and other regulators that Wall Street dealers' role to buy and hold securities for resale has diminished stemming from tougher capital requirements and rising competition from high-frequency trading firms, hedge funds and other non-banks.
Dealers' reduced market-making role has been under the spotlight in the wake of the "flash" rally on Oct. 15, 2014 when Treasuries registered wild price swings in just a 12-minute period.
Still, the top five dealers in U.S. Treasuries handle 60 percent of trading volume with investors, up from 44 percent in 2005, Greenwich said.
Twelve percent of 103 investors surveyed said they are either already engaging in Treasuries trading with non-banks or plan to do so in the coming months, the Stamford, Connecticut-based research firm said. (Reporting by Richard Leong; Editing by Tom Brown)
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