FIA PTG strongly believes in market transparency. When data on prices and trading activity are accessible to all market participants, markets become more competitive and more efficient at serving the needs of investors and hedgers. That’s why we support efforts to improve the availability of data on Treasury markets.
A period of unusual volatility in Treasuries on October 15, 2014 called attention to the market’s changing dynamics, including technological enhancements and the related growth of electronic trading, as well as diversification of liquidity providers. At the same time, it highlighted the need to consider changes to address the market’s unusual lack of transparency.
Regulators from Treasury, the Federal Reserve Board of Governors, the NY Fed, the SEC and the CFTC drafted a joint staff report in 2015, analyzing the events of the prior year within the broader context of the long-term evolution of Treasury markets. In April of this year, Treasury followed up with a request for information on a handful of topics including the appropriate level of Treasury market activity that should be made available to the public, as well as “more comprehensive official sector access to Treasury market data.”
Market participants, including FIA PTG, responded to the request and suggested ways in which regulators could enhance transparency while maintaining a diversity of market participants and preserving the benefits of innovative, competitive, and open markets.
A recently proposed rule by FINRA on Treasury reporting for FINRA members is an important first step towards such reform. More transparency into these markets benefits all market participants and allows for smarter risk management and investment decisions.
One requirement of the FINRA proposal that we believe should be reconsidered is the two-sided reporting requirement. The European Market Infrastructure Regulation (EMIR) requires dual reporting ostensibly to ensure accuracy and quality in data reporting. However, research published by a dozen associations representing market participants noted that, “confirmation execution rates are generally at or above 90%, whereas pairing rates at trade repositories used in dual-sided reporting regimes are around 60%.” The report goes on to note that two-sided reporting adds cost, complexity, and burdens on market participants. In addition to these concerns, much of the data from the U.S. Treasury market may already exist at the platform, clearing firm/prime broker or relevant designated contract market, making two-sided reporting also redundant. FIA PTG remains hopeful that regulators will consider not just the desired outcome of enhanced transparency, but also the efficiency and cost-effectiveness of the means of achieving transparency.
We look forward to additional proposals that increase transparency more broadly, and we’ll continue to share data and insights that support the benefits of diversification, electronic trading, and smart risk controls.
Healthy Treasury markets are critical to our economy, and, just as FIA PTG members have helped improve diversity and technological innovation in Treasuries, our association is committed to working to improve the transparency and infrastructure of these markets.