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Q&A with KCG: What the New Link to KCG Fixed Income Means for TT and X_TRADER® Users

KCG’s Samantha Coyne.

Last month, we announced we will be giving our X_TRADER and TT platform users connectivity to KCG Fixed Income, which provides direct access to on-the-run U.S. Treasury liquidity. This will be the first time we will offer a link to liquidity from a non-exchange provider.

As stated in our joint announcement: “With this new connection to KCG, TT will provide professional traders with a consolidated point of access to multiple sources of global fixed income liquidity. With the upcoming server-side Aggregator, customers will be able to consolidate the display and introduce smart order-routing logic when trading complex strategies across multiple U.S. Treasury markets.”

I recently talked with Samantha Coyne, head of fixed income client services for KCG, to discuss the KCG offering and how Trading Technologies’ customers can leverage this new offering. Read on for her insight.

TT: We are very excited to establish connectivity to KCG’s Fixed Income liquidity. Can you tell us a bit more about the origination of this offering?

KCG: Well first, I want to say what a pleasure it is to be part of the TT family. What we deliver to your network is a bi-lateral market maker that provides strong two-way liquidity in on-the-run U.S. Treasuries. This solution officially started within GETCO in October 2012 and has seen significant growth over the past two years. This unique market making offering is now managed under the KCG umbrella as a result of the strategic merger of Knight Capital and GETCO in the summer of 2013.

TT: You mentioned KCG is a bi-lateral market maker. Can you tell us a bit more about that? How is that different from an exchange or an Alternative Trading System (ATS)?

KCG: Happy to explain! In fixed income, the majority of notional trading volume in on-the-run Treasuries has historically occurred on ATSs. An ATS is an execution platform that is regulated differently from an exchange, but is a place where buyers and sellers can come together and execute anonymously.

We are not an ATS or an exchange. We are a bi-lateral market maker. That means we are the primary liquidity provider and will be the counterparty you will see on the other side of every trade. So the majority of the bids and offers in the market are ours, though the original source of our liquidity could come from a variety of places.

No matter how the liquidity is originated, we take ownership–and accountability–for what we show to clients. The great thing about being in charge of the liquidity shown to you is that we are then in complete control of the quality–both on the entrance and the exit. Our focus can therefore be on providing you with execution quality vis a vis what you might achieve elsewhere. And we have a variety of controls that put us in a position to provide a strong and consistent market to our clients.

TT: You talk about the “entrance and the exit.” What exactly does that mean and how does that focus help your clients?

KCG: Good question. So when a client trades on an anonymous central limit order book, there are a couple issues they might see both on the entrance, i.e., the initiation of interaction with that platform, and the exit, or the ultimate implementation of the trade. On the entrance, maybe a user sees a bid or offer, but by the time they click on it, the market has moved and the bid or offer has disappeared. Those markets, whose liquidity is provided by a number of anonymous counterparties, do not necessarily have the ability to maintain an accessible quote if their participants are not providing liquidity. They are organized as a venue, and therefore not in complete control over the experience of the user on the other side of that trade. Because we have a direct, two-way relationship with each one of our users, we believe that the liquidity we show should be accessible to our clients. The result is a market that a client can “enter” into without concern that it may be transient or “phantom” in nature.

On other platforms, the exit can also prove difficult. There are times when a client may see themselves trying to trade on multiple markets, and experience the market quickly moving away from them. A lot of that impact comes from the real-time disclosure of trading on these venues. Since we are a bilateral market maker, and we face a specific client on each trade–the executions done with us are not displayed or broadcast to anyone else. That minimizes the information leakage, which results in a reduced risk of market impact and an enhanced client experience.

TT: What other benefits will clients see from trading with a non-exchange?

KCG: Along with our commitment to providing a responsible market, we are also committed to showing very large size at competitive price points. It is important to us that our market is both accessible and relevant.

Also important to note–we show those competitive markets during U.S., London and Asia trading hours–all important for our various global clients.

TT: What products are tradable through KCG?

KCG: Today we provide on-the-run U.S. Treasuries–but stay tuned for more products in the near future!

TT: What functionality of X_TRADER will you recommend to anyone trading KCG?

KCG: We are happy to have our liquidity available through X_TRADER and the new TT platform. We are also excited that TT will have our liquidity available in tools such as Autospreader, Autotrader and the ADL visual programming platform. With the server-side Aggregator, customers can consolidate liquidity and introduce smart order-routing logic when trading complex strategies across multiple U.S. Treasury markets. In addition, customers using TT’s Autospreader tool will be able to execute basis trades by spreading the aggregated cash Treasury market against the Treasury futures, which minimizes execution latency via proximity-based computing and co-location.

TT: This all sounds great. Now when are you going to be live and how does a trader sign up?

KCG: We are looking to be live for TT clients the last week of March–but we’re already setting up clients in anticipation of the go-live date. For any questions, to sign up, or just chat about the market, please call our 24×5 hotline (+1 646 428 1660) or click here to send us an email.

©2015 KCG Holdings, Inc. All rights reserved. In the United States, products and services are offered through KCG Americas LLC, member FINRA/SIPC. KCG Americas LLC is an operating subsidiary of KCG Holdings, Inc. In Europe, products and services are offered by KCG Europe Limited which is authorized and regulated by the FCA. KCG Europe Limited is an indirect subsidiary of KCG Holdings, Inc.

Posted by: Elise Fleischaker, VP Marketing

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