(Reuters) – Citadel Securities says bank pricing models were more of a problem than balance-sheet constraints when the U.S. Treasury market suffered from extreme illiquidity and volatility in March.

The global spread of the novel coronavirus in March led to broad market selloffs and Treasury investors said they were sometimes unable to enter trades or find reasonable prices for bonds.

Analysts have said a large factor behind the liquidity problems was that banks were constrained by balance-sheet rules designed to curb risk-taking.

Citadel Securities, however, said technology was a larger issue as banks struggled with where to price trades.

“The idea that regulatory capital constraints prevent large U.S. banks from operating in volatile markets doesn’t make much sense when you look at how active they were in pricing during Jan, Feb and now May,” Paul Hamill, Global Head of FICC Distribution at Citadel Securities, said in a recent interview.

“What we observed in March, and to some extent April, was that those banks were still pricing in the market but were doing so inconsistently and at much wider spreads,” he said.

Citadel Securities is the only nontraditional firm that trades Treasuries with clients, with large banks dominating the industry.

It says its pricing technology outperformed in March with the aggregate difference between the price it quoted and the second-best price quoted by other dealers widening to more than $50 million, from approximately $1.5 million in February.

Its Treasury trading volumes also jumped in March, with electronic trading volumes increasing by 90% while voice-executed trade volumes rose by 44%.

The firm says March’s liquidity issues show the need for diversity among market makers.

“It is important that liquidity is diverse and isn’t dominated by one type of provider,” said Michael de Pass, Global Head of U.S. Treasury Trading at Citadel Securities.

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