Staff Reports
Order Flow Segmentation and the Role of Dark Trading in the Price Discovery of U.S. Treasury Securities
August 2013   Number 624
Revised: August 2015
JEL classification: G12, G14, G18, G01

Authors: Michael Fleming and  Giang Nguyen

This paper studies the workup protocol, a distinctive trading feature of the U.S. Treasury securities market that resembles a mechanism for discovering dark liquidity. We quantify its role in the price formation process and find that the dark order flow generally contains less information than its transparent counterpart. We also show that the workup protocol is used more often around volatile times, but that workup trades become less informative relative to transparent trades. Generally, the evidence suggests that the workup protocol provides a useful mechanism for liquidity trading and avoiding market volatility, and not a channel to hide private information.

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