United States: Trade Associations Comment On U.S. Treasury Market Regulation

Last Updated: April 29 2016
Article by Steven D. Lofchie

Most Read Contributor in United States, August 2018

The MFA, SIFMA, ICI, FIA and the FIA Principal Traders Group ("PTG") and commented on a U.S. Treasury Department request for information about the regulation of the U.S. Treasury market. In general, the Treasury Department requested comment on: (i) trading and risk management practices across the U.S. Treasury market; (ii) reporting of information regarding Treasury market trading; and (iii) access to such reports. The comment deadline closed April 22, 2016.

Specifically, the Treasury sought comment in the following areas:

  • further study of the evolution of the U.S. Treasury market and the implications for market structure and liquidity;
  • continued monitoring of trading and risk management practices across the U.S. Treasury market;
  • a review of the current regulatory requirements applicable to the government securities market and its participants;
  • an assessment of the data available to the official sector on U.S. Treasury cash securities markets; and
  • an assessment of the data available to the public on U.S. Treasury cash securities markets.

MFA:

  • Arbitrary market barriers for market participants, including investors such as private funds, should be removed by requiring non-discriminatory access to Treasury trading venues.
  • Regulators should not rush to impose trading halts or circuit breakers or other changes to market structure prior to collecting further information and conducting further analysis on the Treasury markets.
  • Treasury should: (i) leverage existing reporting regimes, such as FINRA's Trade Reporting and Compliance Engine, and data from designated contract markets, derivatives clearing organizations and swap data repositories; and (ii) work through the InterAgency Working Group for Treasury Market Surveillance formed to improve monitoring and surveillance and strengthen interagency coordination with respect to the Treasury markets.
  • Treasury should require real-time public reporting of cash Treasury transactions with a capped notional threshold for block trades and exceptions for off-the-run or less liquid securities.

SIFMA:

  • There should be enhanced official sector reporting to allow for more timely, comprehensive, and regular assessments of changes to market dynamics and analysis of historical trends and market participant behavior, particularly in the context of stress events or external shocks.
  • Regulators should refrain from pursuing public disclosure mandates of positions or transactions in the absence of clear, compelling, demonstrable benefits to overall liquidity from such disclosure.
  • Regulators should assess aspects of regulations and risk management, monitoring and trading practices that may be disproportionately affecting some market participants or products.
  • Regulators should evaluate the potential merits of mandatory centralized cash Treasury and repo clearing, assessing whether it can be appropriately structured to improve liquidity in a cost-effective and risk-sensitive way that, with respect to cash Treasuries, addresses potentially significant systemic risk implications.
  • Regulators should assess the coherence of capital and liquidity-related regulations with regard to their impact on liquidity for the U.S. Treasury market to ensure that regulations are appropriately calibrated and harmonized to promote the goal of safety and soundness while at the same time minimizing any negative impact on Treasury market liquidity.

ICI:

  • The Treasury should leverage existing reporting regimes and practices and seek consistency with other regulators.
  • The Treasury must consider a centralized vs. decentralized reporting model.
  • The Treasury must maintain the security data it collects.

FIA

  • Treasury futures markets are distinct from the cash Treasury securities markets and subject to very different market structure regulation under Federal law
  • Singling out Treasury futures for special, additional regulatory requirements in the areas of risk control, market data collection and market surveillance could be highly disruptive to the procedures and infrastructure that the exchanges and industry already have put in place to comply with their comprehensive regulatory obligations under the CEA framework.
  • Treasury should assess potential factors that may be shaping the Treasury markets, such as whether regulatory capital constraints on banks or other market participants are inhibiting their level of participation in the Treasury markets, potentially harming market liquidity.
  • Given the reality of multiple statutory frameworks applicable to different segments of the Treasury markets including multiple regulators for the Treasury securities markets, the Treasury should consider whether there are any areas where regulatory requirements pose obstacles to the fair and efficient operation of the Treasury markets.

FIA PTG

  • Diversification of liquidity providers benefits markets.
  • Any changes in U.S. Treasury market structure must first acknowledge the benefits afforded by technological innovations.
  • Regulators should increase the use of both pre- and post-trade risk controls as well as self-match prevention technology in the U.S. Treasury market.
  • Regulators should increase transparency for market participants.

Approximately fifty other persons submitted comments.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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