Q&A: Under what types of market structure would...

...it be possible to have two separate but simultaneous transactions where bond X was traded at unit prices of $105 and $95 respectively?

A broker gets involve when buyers and sellers of securities find themselves unable to identify each other without high costs (mostly due to heavy trading volume). The broker may not be able to execute the order instantaneously, so it is essential that transactions away from the best possible price must not be too costly.

The secondary market for the U.S. Treasury is organized as a dealer market. Dealers take outright positions (ie. inventory) in the market and is exposed to market risk. Therefore the bid-offer prices will vary from dealer to dealer. Their inventory save time spent in searching for buyers and sellers.

Bond X is more likely to have been traded in an illiquid dealer market.

Category: C++ Quant > Debt

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