By Michelle Price
WASHINGTON – U.S. regulators are assessing potential ways to boost the resilience of the U.S. Treasury market, including improving market data quality, increasing oversight of trading venues and introducing central clearing, according to a Treasury Department-led report published on Monday.
The market for Treasury securities is the most liquid in the world, and the global financial system uses them as a benchmark for asset classes.
But as pandemic fears gripped investors in late February and early March 2020, Treasury market liquidity rapidly deteriorated to 2008 crisis levels, prompting the U.S. Federal Reserve to buy $1.6 trillion of Treasuries to increase stability.
Other disruptions have occurred in “seemingly more benign
environments,” the Treasury said on Monday.
The Inter-Agency Working Group for Treasury Market Surveillance, led by the Treasury and comprising the Fed and market regulators, has been exploring overhauling the market to improve its resilience in times of stress.
Monday’s report provides an update on areas regulators are exploring, flagging five workstreams.
These include the role of intermediation by big dealers in the market, which have struggled over the years to keep up with vast Treasury debt issuance. Among the changes could be tweaking a capital rule which banks say constrains their ability to hold and deal in Treasuries.
The regulators are also assessing whether the timeliness and granularity of market data on positions and transactions needs to be improved; whether some Treasury trades should be put through central clearing houses, improving the risk management around such deals and whether the alternative trading platforms on which many Treasuries trade require increased regulatory scrutiny.
Additionally, the regulators are examining the role of open-ended funds and other investors in the marketplace, and whether runs on those funds led them to sell off Treasuries to meet redemptions and margin calls.
(Reporting by Michelle Price; Editing by Richard Chang and Cynthia Osterman)