Treasury Tick Sizes, Trade Sizes, and Displayed Liquidity on BrokerTec
Summary
The document compares tick and minimum trade sizes for BrokerTec U.S. Treasury central limit order books. It reports that the existing venue uses different price increments across Treasury maturities, with quotes expressed per $100 of face value and a minimum order size of one million dollars face. It contrasts this with a planned Chicago venue using smaller increments and one hundred thousand dollar face lots.
The answer illustrates how an increment translates into a dollar spread cost for a one million dollar position, including examples for five-year notes. It expects the new venue’s displayed spread to remain close to the established venue’s, while liquidity providers may show less size at the inside price. That expectation is informed by behavior on other Treasury order books with smaller ticks, but it is a prediction rather than a measured outcome. The discussion also notes that tick and lot conventions vary by maturity; it does not explain the market design rationale in depth.
Key ideas
- BrokerTec Treasury tick increments vary across maturities on the existing order book.
- The cited venue uses a one million dollar face minimum lot, while the planned Chicago book uses smaller lots.
- Dollar spread cost depends on both the price increment and the face amount traded.
- Smaller ticks may reduce the cost per increment while leaving displayed spreads similar if inside liquidity is thin.
Tags
Full text
# Tick size brokertec
# Tick size brokertec
Brokertec is going to open a new CLOB in Chicago for US treasuries with a smaller tick size. For example for 5Y the tick-value is going to be $100k \cdot \frac{1}{16 * 32} = 195.3125$$. This already seems like a huge tick value for US treasuries, meaning every time the bond tick, you loose or win 195 dollars compared to stock where it's only 0.01 dollars.
So I am wondering what are the tick size of the old CLOB are? since the Chicago one is suppose to improve the tick size I am wondering what's the tick and lot size for the old one. I wasn't able to find this information on their website. I assume also that just like the Chicago CLOB the lot size and tick size changes by maturity. I am also wondering why this is the case, any idea?
## Answer by optrtsqnt (score 1)
https://quant.stackexchange.com/a/82457
UST are quoted in terms of 32nd's and 8th's. Currently BrokerTec trades 2Y/3Y at 1/256 increments, 5Y/7Y at 2/256 increments, 10Y/20Y/30Y at 4/256, and prices are quoted on 100\$ face value. The minimum trade size is a 1 lot of 1M face value in the note/bond. So for 1M the spread paid is 10,000 * your increment, on 5Y the spread is \$78.125. The new Brokertec will have the whole OTR curve trading in 32nd's and 16th's, in \$100k face lot sizes. 5Y could trade at a 1/512 increment, and then the full spread paid is 10,000/512 \$19.53125 for 1M face.
I expect the market to still trade at roughly the original BrokerTec spreads, with liquidity providers showing very little size on the inside level. You see this behavior on other UST clobs that already have tick sizes in 16ths.Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.