Rutter says this kind of self-policing gives non-bank traders a greater incentive to provide firm orders, while weeding out predatory firms that try to game the system.

LiquidityEdge will also use Cantor Fitzgerald as a central clearing counterparty, settling trades via the Fixed Income Clearing Corp. That means trades are guaranteed even if one party fails to deliver on either payment or bonds. The lack of a such an arrangement precipitated the demise of Direct Match, a Treasuries trading startup that shut down in August.

Diminishing Returns

To be sure, a proliferation of trading platforms could potentially harm liquidity more than help it.

New venues may poach clients from the incumbents -- BrokerTec, Rutter’s former employer, and eSpeed -- but that may just lead to shallower liquidity across more venues and result in a Treasury market that’s more fractured than it is now. LiquidityEdge Select will be the firm’s second trading venue for Treasuries. It will sit alongside the firm’s one-year-old bilateral platform, LiquidityEdge Direct.

“Is it a case of, the more liquidity pools the merrier?” said Anthony Perrotta, global head of research and consulting at Tabb Group, which specializes in market-structure research. “Some would say yes. At the same time, people’s bandwidth is only so great.”

The Treasury market’s two incumbents, BrokerTec and eSpeed, already have plans to launch competing trading venues later this year.

BrokerTec Direct will let investors trade with dealers and HFT firms whose identities are disclosed. Like LiquidityEdge, it will also use private streams of bids and offers instead of a central order book.

ESpeed’s CrossRate venue will classify members into two categories: providers and consumers of liquidity. It’s designed to bring together smaller dealers and regional banks -- which typically lack the technology and know-how to compete against proprietary trading firms -- with a few of the most active primary dealers in Treasuries. For the bigger dealers, the platform will give them the chance to widen their client base.

‘Toxic Flow’