November 14, 2023 | Stamford, CT — The SEC has proposed a series of notable changes to the market structure for trading U.S. Treasuries with the stated mission of clearing up opaque transparency and enhancing liquidity during times of stress. Most prominently, the agency has proposed or discussed a clearing mandate, registration requirements for nonbank market makers and more stringent registration requirements for electronic trading venues.
However, 85% of buy-side traders across North America, Europe and Asia interviewed in a new research study from Coalition Greenwich do not believe the market needs sweeping change. Study findings reveal that more than half of the U.S. Treasury traders interviewed believe the market does not need major change, while one-third feel only minor adjustments are needed.
“Market participants are not against market reform, but the majority are convinced the current proposals have gone too far or miss the mark of the SEC’s stated intentions of improving U.S. Treasury transparency and liquidity,” says Kevin McPartland, Head of Research at Coalition Greenwich Market Structure & Technology and author of U.S. Treasury Market Reform: The Buy-Side View.
No to Central Clearing, Yes to More Electronic Trading
Central clearing is arguably the most impactful recent proposal from the SEC. In late 2021, 14 of the 18 U.S. Treasury traders Coalition Greenwich spoke with did not believe the SEC should mandate clearing. That sentiment remains largely unchanged today.
So, what reforms do traders support? Nearly half of study participants suggest that banks should be encouraged to hold more U.S. Treasuries to support their market-making businesses via lower capital charges on those holdings. In addition, requiring all U.S. Treasuries to be traded electronically—something never formally proposed by regulators—was surprisingly high on the list of improvements endorsed by study participants.
“Continuously working to improve the market structure for U.S. Treasury trading is prudent, but that process must include cost-benefit analyses to ensure the time spent yields the needed results,” said McPartland.
U.S. Treasury Market Reform: The Buy-Side View analyzes buy-side perspectives about the state of the U.S. Treasury market structure and recent reform proposals from the SEC. The report presents a detailed breakdown of buy-side opinions on market liquidity, central clearing, electronic trading, and other issues central to the debate surrounding proposed new rules.
Source: Coalition Greenwich
