With the recent increase in volatility, the awareness and concern within the buy-side community about the lack of depth for large block trades in off-the-run Treasuries has increased significantly. For the market to be able to absorb the ever-increasing supply of Treasury issuance, more than 98% of which quickly ends up in the OFTR bucket, there will need to be many winning platforms in the space. President and CEO Susan Estes explains OpenDoor’s value proposition.
Congratulations to LiquidityEdge for stepping up to help address the liquidity issues in off-the-run (OFTR) Treasuries. For the market to be able to absorb the ever-increasing supply of Treasury issuance, more than 98% of which quickly ends up in the OFTR bucket, there will need to be many winners in this space.
The good news is there are choices. OpenDoor’s dark pool is completely anonymous. There is no bilateral disclosure of counterparties. We have solved the clearing issue that previously prevented buy side-to-buy side anonymous matched trades. We have partnered with progressive dealers that do not demand visibility into the platform. We have resisted changing our business model to accommodate dealers who require visibility into trades as a prerequisite for their participation, because our customers value anonymity. Complete anonymity.
With the recent increase in volatility, the awareness and concern within the buy-side community about the lack of depth for large block trades in OFTRs has increased significantly. There is also a greater awareness of what the growing technological divide has created: a reduced risk-on/risk-off pool of liquidity. There are only a handful of large bank intermediaries capable of offering reasonable amounts of “on-demand liquidity.” Those same institutions have funded highly sophisticated IT initiatives that allow them to reverse engineer buy-side portfolios. Trade information and data have never been more valuable.
There should be no mystery around the willingness of large banking institutions to act as loss leaders when pricing Treasury inquiry. It is the price they pay for information that allows them to reverse engineer portfolios and gain a better understanding of how to position themselves for subsequent transactions. At the time of initial inquiry, pricing may look attractive, but over time those securities will richen or cheapen, and the degree to which they do is the true cost for counterparty trade disclosure.
[Related: “Execution: Price Isn’t Everything”]
Mid-market execution at the time of execution should not be the gold standard used to calculate TCA. Price stability, how much an issue richens or cheapens vs. the curve, following trade disclosure, is key. OpenDoor has delivered a solution that prevents information leakage, which can negatively impact the price of a security following counterparty trade disclosure.
OpenDoor offers complete anonymity with no visibility into a customer’s trading book, by anyone other than the customer, which significantly reduces, if not eliminates, market movements regardless of trade size. Our buy side-to-buy side match rate has been as high as 20%. It averages 17%. Our platform has facilitated more than $1.3T in orders, with nearly $300B, or 23%, placed at or through mid-market pricing. The percentage of trades on the OpenDoor platform executed at or through mid-market pricing is 85%. This has been accomplished with four limited session-based auctions daily. Not bad for a start-up still in its infancy.
OpenDoor is committed to price transparency. Trades are dark, but our platform streams reference prices in all 350+ CUSIPS, all day long, free for all participants on our platform. We encourage you to leverage our pricing information. In Q1 2019, OpenDoor will launch continuous auctions, allowing for immediacy of execution with protocols engineered to allow disparate pools of liquidity to find one another. Stay tuned.
This article originally was published on LinkedIn.