Pico empowers clients to modernize trading in US Treasuries, are you missing the big opportunity?

In the past 18 months, Pico has spent a significant amount of our roadmap cycles focused on providing technology to traders, investing in the US Treasuries market. We have been building:

• Low-latency network access to trading venues and brokers

• Colocation services

• Low-latency software to connect to market data and execution protocols

• Corvil Analytics which includes infrastructure & trade plant performance reporting, business level/trade desk reporting and compliance reporting

All of the above has been built to support clients deploying electronic trading strategies and new algorithms. These systems connect to a growing list of trading venues and brokers in the Treasuries trading ecosystem.

What is driving these investments? 

Recent statistics from Coalition Greenwich stated that the average daily notional value (ADNV) for US Treasuries traded in February 2024 was $918 billion USD, up 41% compared to the same figures recorded in 2023^[1]. A record-breaking 61% of dealer-to-client trading was executed electronically in this period.

These statistics show market activity is growing, and dealers are doing more electronically, so there is no real surprise that technology investment is top of mind for many firms. There has been a well-documented focus on the growing dominance of HFT (High Frequency Trading) firms in the broader US Treasuries market for many years, so what is the cause of this recent activity? In speaking with our clients, we noted several drivers for this renewed focus on modernization, which spans across primary dealers, banks, and hedge funds. In addition to the growing market size, we noted the following other drivers:

1. Due to increased market activity and other factors, new market participants are being attracted. Growing demand from new clients and more competition with existing clients pushes the sell-side to improve their systems to attract business.

2. There is a push to increase the use of automated workflows to manage higher volumes, and maintain or reduce the operational cost base.

3. In large sell-side firms, technology silos across asset classes are no longer acceptable. Clear corporate mandates exist to move away from single-asset technology systems. Where Pico has had technology deployments with its clients in Equities and Derivatives, using these same APIs to build out trading rates has improved performance, and delivered the corporate objective of providing synergy and consistency.

4. Related to point 2, traditional vendors in the Fixed Income markets do not specialize in the ultra low-latency market. We have heard talk of milliseconds and not microseconds, or worse than that in conversations with clients. Some traditional vendors do not expose time stamps in their technology, which is a telling signal that latency is not only a low priority but also that it is never measured.

Market Structure

Market structure continues to evolve. There is a fragmented marketplace with numerous inter-dealer brokers and trading venues, and this list is growing. Exchanges are investing. For example, CBOE recently announced its new platform for US Treasuries. There is also evolution in the Futures market, with FMX announcing the launch of the FMX Futures Exchange.

The trading venue landscape can now draw parallels between the Equities markets. The M&A trend among venues is certainly present. From a technology standpoint, some similar protocols are now used. Exchanges have migrated to popular colocation facilities and, in some cases, launched new matching engine technologies. Market structure is, however, more complex than Equities, with central limit order book venues and bilateral streams with dedicated liquidity to navigate, amongst other differing technical details. The HFT firms now make interfaces available to also trade directly with them.

Rates venues have increasingly allowed curation of liquidity by the venues and clients, which compounds the complexity of choosing the right venue to execute on. These changes require trading firms to utilize flexible technology that adapts to their trading needs.

These changes and investments from trading venues and the list of HFT venues to trade with directly, are another key driver for the increase in activity around the front office technology landscape. Besides improving performance, the growing number of venues available presents a major operational headache for clients, something that can be avoided by working with the right technology partner.

What the future holds?

The US Treasuries ecosystem is set to continue growing in complexity, with greater reliance on electronic trading workflows. We expect further transformation in the exchange landscape, increased improvements in technology at trading venues and more customers deploying applications to trade the markets.

At Pico, we have the tools to assist clients as they invest. We can manage your servers in colocation, provide low-latency network access to markets, and, importantly, provide APIs offering single-digit microsecond latencies for both market data and execution. We can manage and monitor all of this for you. Getting to market can be fast and easy with Pico, leaving customers to focus on their algo development. If you are trading US Treasuries and think we can help modernize your systems, contact us.

^[1] https://www.fi-desk.com/coalition-greenwich-us-treasury-e-trading-volumes-hit-record-in-february/