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Treasury Trading Q&A: Elisabeth Kirby, Tradeweb

| Rates
Liz Kirby
Elisabeth Kirby
Managing Director and Head of Market Structure, Tradeweb
This article originally appeared on Markets Media here.

Last week, Tradeweb Markets and ICE Benchmark Administration launched Tradeweb ICE U.S. Treasury Closing Prices. In a joint release, Tradeweb and ICE said trusted reference price data is critical for financial firms to manage investment portfolios, evaluate the fair value of securities, perform compliance monitoring, and satisfy general accounting standards. The Tradeweb ICE U.S. Treasury Closing Prices are designed to represent the daily market mid-price for U.S. Treasury securities.

Markets Media caught up with Elisabeth Kirby, Managing Director and Head of Rates Strategy at Tradeweb, to learn more.

What market need was identified that led to the development of U.S. Treasury Closing Prices?

The U.S. Treasury market is the largest in the world, with $16trn in tradeable securities, but unlike other sovereign debt markets (like the U.K., where we provide official Gilt prices), it has no official close. As a result, lots of participants have relied on different snapshots of the market at various points of the day, or varying estimates of where the market should be to close their books each day.

Participants are shifting away from submission based pricing and towards independently validated reference prices, and so we launched the Tradeweb ICE Treasury Closing Prices based almost entirely on customer demand. Anyone who has to mark to market each day needs a transparent, robust price that they can trust. Given the long history and strength of our U.S. Treasury trading platform, market participants look to us for the provision of that high-quality data, and in working with IBA, we’re ensuring that the data is fully validated.

How does this launch move the needle versus what data had been available for U.S. Treasury traders/investors?

Our aim with the Tradeweb ICE U.S. Treasury Closing Prices is to establish the market-wide close, for everyone – including, but not limited to, our customers – to use. That’s why the IOSCO Principles have played such a large part in our approach and design: it helps to guarantee that these prices will be independent and truly based on market activity.

What transactions will the U.S. Treasury Closing prices be based on and how robust will the pricing be?

The Tradeweb ICE U.S. Treasury Closing Prices are calculated and published daily on more than 900 U.S. Treasury securities using prices available on our global institutional platform. From those prices, supplied by as many as thirty of the largest U.S. Treasury dealers, we calculate a single bid and offer price, and then derive the official closing mid-market price. We do this all around 3 p.m. Detailed pre-calculation checks and post calculation monitoring and surveillance then rounds out the process, and the prices are published at around 3.45 p.m.

The breadth of the prices on the Tradeweb platform, from such a large body of critical market participants, will bring much needed accuracy to the Treasury market close. And the methodology is tried and tested: it’s the same one we use in the U.K to calculate Closing Prices for Gilts. We took over the exclusive provision of those closing prices from the U.K.’s Debt Management Office in 2017.

In the Sept. 10 release, Tradeweb CEO Lee Olesky said the prices will “address the industry’s ever-increasing demand for accurate, independently validated market data, based on a strict and transparent methodology.” How and why is industry demand ever-increasing?

There are a number of factors that drive our industry’s desire for more data.

The first is the advance of technology, and the speed at which trading, and more broadly the entire workflow, is electronifying. In order for those technology processes to work, you need concrete data inputs. Obviously, the better the data, the better the input.

The second is a far more granular focus by firms on compliance and best execution. For these analyses to be most successful, it helps to have objective, robust prices that are utilized across market participants.

Lastly, but no less importantly, is the increasing impact of ETFs and passive investments. These types of flows represent a huge and growing segment of the marketplace that requires accurate closing prices to reduce tracking errors versus benchmarks.