2-Year Note Futures Tick to Be Reduced by Half, Effective Jan 13

[maxinger]

To counter this very fine tick size problem, we need to have ability to make it coarser.

Only some brokers and trading platforms allow you to make the tick size coarser.
This way, your trading ladder wouldn't be super long.

Time to look for better brokers and trading platforms to address these exchange created problem. Must look for system that allow us to adjust tick size to make it coarser and to reduce the number of price digits (the lesser the better for old people like me).

 

[bone]

To counter this very fine tick size problem, we need to have ability to make it coarser.

Only some brokers and trading platforms allow you to make the tick size coarser.
This way, your trading ladder wouldn't be super long.

Time to look for better brokers and trading platforms to address these exchange created problem. Must look for system that allow us to adjust tick size to make it coarser and to reduce the number of price digits (the lesser the better for old people like me).

Many traders are going to continue to place bids and offers 1/4 of a 32’nd wide (as is current practice). So it might be 10 bid and 8 offered at an 1/8 but it might be something like 250 bid by 425 offered at a 1/4.

 

[HobbyTrading]

Many traders are going to continue to place bids and offers 1/4 of a 32’nd wide (as is current practice). So it might be 10 bid and 8 offered at an 1/8 but it might be something like 250 bid by 425 offered at a 1/4.

Maybe the humans do, but all the algo traders don't care what granularity is being used. To a computer is a number just a number.

 

[bone]

Maybe the humans do, but all the algo traders don't care what granularity is being used. To a computer is a number just a number.

They’ll adjust after they get picked off a few times. Or they take their game to the Eurodollars, cash Treasuries, and the Schatz.

 

[bone]

Maybe the humans do, but all the algo traders don't care what granularity is being used. To a computer is a number just a number.

It's important that know that the algos are placing bids and orders proportional to the liquidity they see in correlated markets. So if the two year cash treasuries on Brokertec and Cantor Fitzgerald are 1/4 of a 32nd wide, I highly doubt the algos are going to tighten up to an eighth - to do so they would in turn be getting picked off by the basis traders and the inter market spreaders.

 

[HobbyTrading]

It's important that know that the algos are placing bids and orders proportional to the liquidity they see in correlated markets. So if the two year cash treasuries on Brokertec and Cantor Fitzgerald are 1/4 of a 32nd wide, I highly doubt the algos are going to tighten up to an eighth - to do so they would in turn be getting picked off by the basis traders and the inter market spreaders.

Thank you for this. I had not thought of this aspect.

 

[ajacobson]

FEBRUARY 2019 RATES RECAP




Strong Liquidity in 2-Year Note Futures Following Tick Reduction
In response to client demand and to enable greater price discovery and cost-effective execution, the minimum price increment for 2-Year Note futures (ZT) was reduced by half (to 1/8 of 1/32nd) on January 13.

In the three weeks since:

• The average top of book spread has traded at the new minimum tick for more than 94% of the trading day during regular trading hours (exhibit 1)
• ZT volume as a percentage of Treasury futures volume was 13.3% vs. 11.1% in 2018 non-roll months
• ZT open interest increased 15.5% compared to 1% growth in the 5-Year (ZF) over the same period

Exhibit 1: ZT Tick Liquidity During RTH

Avg Top of Book

% of Time at Minimum Tick

Jan 14-18 1,037 96.3%
Jan 22-25 1,020 91.1%
Jan 28-31 1,240 94.3%

The cost to trade in ticks was reduced by as much as 36%, based on analysis conducted using the CME Liquidity Tool (exhibit 2).

Exhibit 2: Cost to Trade in Ticks (32nds)
Size
Jan 7-11

Jan 14-Feb 1

Cost Change*

1,000 lots 0.259 0.167 -36%
5,000 lots 0.323 0.288 -11%
5,000 lots represents $1B notional, among the largest trades executed in the electronic central limit order book. Larger size trades may theoretically show higher cost of execution but are not commonly executed as a single aggressing order.
➜ Details of the 2-Year Note Tick Reduction

 

[bone]

Well, I am surprised but if it increases liquidity and volume in the US 2 Year Note future that is good for me personally.

 

[southall]

IIRC they halved the tick on the long bond futures (ZB) about 11 years ago and then backtracked after a few years because the depth became really thin after the change.

 

[bone]

IIRC they halved the tick on the long bond futures (ZB) about 11 years ago and then backtracked after a few years because the depth became really thin after the change.

Yeah, almost always these tic reductions hurt liquidity. If this particular circumstance bucks that trend and liquidity in the ZT future is not impaired then that helps me.