An international derivatives marketplace has announced its intention to introduce a second BrokerTec central limit order book (CLOB) dedicated to cash U.S. Treasuries, scheduled for launch in the third quarter of 2025. This new order book will be strategically located in Chicago, adjacent to existing U.S. Treasury futures and options markets. This move is expected to facilitate better trading between cash and derivatives markets.
In light of the current climate of uncertainty and increasing national debt, there is a continued emphasis on U.S. Treasury spread trading. This trading strategy is becoming essential for price discovery and liquidity across various market segments, including cash, futures, and repo markets. The introduction of the new trading venue is anticipated to simplify and enhance the trading experience for global market participants.
Currently, traders must navigate the complexities of deploying relative value strategies across markets in New York and Chicago, which can introduce risks associated with “legging,” or misalignments in trades. The forthcoming CLOB is designed to improve the trading experience for cash versus futures strategies significantly. It will also accommodate smaller notional sizes and adjust minimum price increments, thereby allowing smaller firms to engage in spread trading. This change is expected to enhance the overall depth and breadth of liquidity available in the market, while also increasing matching opportunities for participants.
The existing BrokerTec CLOB in New York will remain the primary venue for price discovery in cash U.S. Treasuries, boasting an average daily notional volume of $113 billion as of February 2025. The forthcoming Chicago CLOB, operated by BrokerTec Americas LLC, will serve as a complement by focusing specifically on relative value strategies. Traders will be able to engage with all seven of BrokerTec’s on-the-run benchmark U.S. Treasuries in smaller notional amounts, aligning more closely with the futures market. Additionally, the tighter price increments of 1/16th of a 32nd will enhance precision in hedging activities.
The new trading venue will be accessible via Globex and will utilize the existing BrokerTec API, allowing clients to connect seamlessly using their current CME Group infrastructure. Furthermore, an opportunity for client testing will open on April 27, 2025, providing users an early look at the system and its functionalities.
This initiative underscores a commitment to creating more efficient trading environments and enhancing the overall client experience in the ever-evolving landscape of U.S. Treasury trading. With the ongoing developments, market participants can expect increased opportunities for liquidity and better management of their trading strategies.