Price Discovery in the U.S. Treasury Market: Automation vs. Intermediation

This paper examines the contribution to price discovery by electronic and voice‐based trading systems in the U.S. Treasury market. Evidence shows that the electronic trading system has more price discovery and that trading automation increases the speed of incorporating information into prices. However, human trading generates significant price discovery, though its volume is low. The relative contribution of a trading system to price discovery depends on liquidity, volatility, volume, trade size, and order imbalance. The voice‐based trading system contributes more to price discovery when trade size is large and liquidity is low. These findings provide important implications for the design of electronic markets for securities with different characteristics and trading environments.