CFTC Chair J. Christopher Giancarlo reviewed the findings of a recent study by the Office of the Chief Economist of the CFTC on the relative liquidity of exchange-traded futures contracts and cash securities in the U.S. Treasury market.
In remarks at the Fourth Annual Conference of the Evolving Structure of the U.S. Treasury Market, Mr. Giancarlo stated that the study illustrates a "highly complex and dynamic 'liquidity hierarchy' in the U.S. Treasury market." According to Mr. Giancarlo, the study showed that:
- overall risk volume is greater in securities transactions than in futures contracts, taken in the aggregate, but some futures are more liquid than securities;
- the relative amount of risk transacted through futures is higher on days with large price movements; and
- average trade size is higher for securities than that for futures contracts, likely due to the prevalence of automated trading in futures markets.
Mr. Giancarlo said the study also found, among other things, that:
- as volatility goes up, liquidity goes from less liquid cash securities to more liquid futures contracts; and
- futures generally represent a bigger fraction of risk transfer outside of U.S. trading hours.
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