All these changes have come as regulations imposed in the aftermath of the financial crisis prompted Wall Street banks to retreat from dealing. Computerized firms have swept in to fill the void.

Electronic platforms like ICAP Plc’s BrokerTec and Nasdaq Inc.’s eSpeed now account for almost half the volume in the Treasury market. Bloomberg LP, the parent of Bloomberg News, and its affiliates also provide trading in Treasuries.

‘Phantom Liquidity’

On the main venues that cater to dealers, eight of the 10 biggest firms by volume last year were non-bank proprietary trading firms, according to Greenwich Associates, a financial services consulting firm. Their influence has led HFT critics to blame computerized traders for providing “phantom liquidity.”

That occurs when those firms use their speed to suddenly change the amount they are willing to buy (or sell) once they detect incoming orders. And it can be costly for slower-footed investors who enter the market thinking there’s a certain amount they can trade, only to have it disappear. In some cases, predatory firms use sophisticated algorithms to decipher a counterparty’s intentions and race ahead of its orders.

The problem was underscored by the Bank for International Settlements, which concluded in a January paper that such strategies have the potential to depress bond-market liquidity. According to Greenwich, less than half the trading activity on inter-dealer platforms last year consisted of “true market making,” which the research firm defined as the willingness of firms to buy and sell a specific security on demand.

“A lot of the intermediaries that had balance sheets to absorb risk and trade, they’re gone,” said Ed Al-Hussainy, senior global interest-rate analyst at Columbia Threadneedle Investments, which oversees $460 billion.

Value Proposition

That’s where Rutter comes in. LiquidityEdge is the first of at least four companies that are planning to start trading platforms by year-end.

LiquidityEdge Select differs from traditional electronic platforms in a few distinct ways. First, clients can pre-select counterparties and trade with them using anonymous user IDs, rather than sending an order into a central market that everyone can see. That maintains confidentiality and enables clients to receive bids and offers only from parties they want. Second, the system allows customers to exclude any streams at any time.