Black Boxes and Bonds

Interesting article on Treasury Trading and Black Boxes.

http://www.bloomberg.com/apps/news?pid=email_us&refer=bond&sid=aY0t5QwgkZkc


Nov. 28 (Bloomberg) -- Six computer screens crowd the desk of Sanjay Verma in Morgan Stanley's third-floor trading room near Times Square in Manhattan. Verma, the firm's top government-bond trader, keeps his attention glued to just one of them.

Verma, 37, is monitoring a computer that his team programmed with mathematical models, or algorithms, to conduct rapid-fire bond trades without human intervention. On Wall Street, systems like Verma's are called black boxes because only insiders know the variables that trigger their transactions.

``I never take my eye off it,'' says Verma. ``If we didn't have a black box system we'd be missing the boat.''

Black boxes are transforming the U.S. Treasury market, which has long been dominated by primary dealers -- the big firms such as Morgan Stanley that are required to bid at government debt auctions.

Now, traders with the best mathematical models and the fastest links to electronic exchanges are gaining the edge. They include commodity traders and hedge funds, which have expanded into Treasuries, becoming some of the market's biggest traders. For the dealers, algorithms are both an opportunity to find new profit and, in the hands of others, a threat to the dealers' control of the market.

At the same time, algorithmic trading, rejected by some firms as potentially risky automation, is helping boost trading of $4 trillion in outstanding securities to record levels.

***see link above for entire article***

 

Thanks for the link.

Here is another one maybe of interest.

Automation versus Intermediation: Evidence from Treasuries Going Off the Run
http://opim-sun.wharton.upenn.edu/wise2004/sat311.pdf

 

Heh, I know this guy, pretty sharp fellow. He was previously with Goldman, did cash bonds for a while.

If my guess is correct about which system he is referring to, this is a new system that just went into production I believe 4-5 months ago.

 

This link doesn't work, do you have a valid ink? Thanks!

 

I thought the whole point of having a black box was that you can go safely on vacation and not worry about the markets...

I guess he doesn't trust his own programers...

 

Try this: http://www.bloomberg.com/news/markets/bonds.html

 

Thanks OddTrader butthat link refers to a different story.

 

Here you go:

http://quote.bloomberg.com/apps/news?pid=nifea&&sid=aB5xlrH4MJEI

 

Sorry for that, as I copied the link from my links history without noticing/ checking the contents.

 

Heh, the new article quoted some interesting people (Donnie Wilson, John Liew, etc), curiously no one from Clinton. Whomever wrote the article knows who the players in the cash bonds program trading players are ... interesting.