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Our Work


Client Description
Sell-side financial institution
Background
A boutique bank from New York was looking to improve their trading efficiency in certificates of deposit. This market was affected by the changes in interest rates and flattening of the yield curve, rendering previously successful trading strategies much less effective. The client was looking to leverage the market trading data to adjust their approach by identifying those segments of the market where the total trading volumes have decreased and those where they increased, and determining the optimal adjustment in their bid/offer spreads in each segment of the market.

Approach
We analyzed a 4-year trading history to uncover market trends in maturity and lot size of CDs that were offered on the market and those that successfully traded and the success rate and bid/offer spreads of the client’s traders historically and under different market conditions. We broke down the CD market into segments by maturity, ticker, and lot size and, based on the recent (6-month) trading reports, identified what gains in trading volume could be achieved by adjusting bid/offer spreads for each of these segments. We established that the client could, by reducing the bid/offer spread by 20-25% in particular segments of the CD market, increase their overall trading volume by 100%. This provided the client with sufficient information to adjust their trading strategy, optimize their bid/offer spreads, and focus on those segments of the CD market which could yield highest return-on-capital.
Outcome
We provided a probabilistic system that allows the client to model impacts in trade volume and revenue based on bid/offer spread adjustments across instrument classes broken down by ticker, maturity, and lot size. This system factors in trade color information including winning bids, cover bids, bid stack placement, and traded/non-traded line items.