NEW YORK (Reuters) - Startup electronic fixed income trading platform OpenDoor Securities said it would hold its first auction on Tuesday, with the aim of improving liquidity in hard-to-trade areas of the $13.8 trillion U.S. Treasury securities market.
The platform will offer "all-to-all" trading for off-the-run Treasuries and Treasury Inflation Protected Securities (TIPS), starting with a single auction at 11 a.m. on Tuesday, before ramping up in the near term to four daily auctions.
Liquidity in off-the-run Treasuries, which are Treasury bonds and notes issued before the most recent issue of a particular maturity, has declined as a result of post-financial crisis regulations that force banks to hold more capital and pull back from market making activities.
"There is a structural problem in the market place," Susan Estes, chief executive officer of OpenDoor, said in an interview.
Off-the-runs and TIPS represent 98 percent of total outstanding issuance in U.S. Treasuries, but generate less than 32 percent of average daily trading volume, said Estes, who formerly ran Treasuries desks at Deutsche Bank (DBKGn.DE) and Morgan Stanley (MS.N).
The auctions will let financial firms like pension funds, hedge funds, insurance companies, trading companies, and central banks, that are sponsored by dealers, trade anonymously with each other on the platform.
Off-the-runs are currently traded mainly through "request for quote" processes and central limit order books.
Six dealers were signed up at the launch along with financial institutions representing $5 trillion in assets under management (AUM). Another six dealers with clients representing $16 trillion in AUM are lined up to join by the end of the second quarter, OpenDoor said.
"Liquidity conditions remain challenging across many asset classes," Barry Cohen, managing director at Societe Generale (SOGN.PA), which is one of the dealers signed up for the launch, said in a statement.
"We absolutely believe that the OpenDoor platform represents an innovative way to utilize technology to achieve added liquidity in the off-the-run and less liquid corners of the Treasuries market," he said.
Reporting by John McCrank; Editing by Meredith Mazzilli