Better Markets filed a comment letter in response to the U.S. Treasury Department’s Request for Information (“RFI”) regarding increasing transparency in the secondary market for U.S. Treasury securities (“Treasury markets”).

Why It Matters. Despite the importance of the U.S. Treasury markets to the global financial system, regulators still do not have all the tools necessary to adequately oversee this market. Many blind spots remain, particularly in the cash and repurchase agreements (“repo”) markets, because a significant proportion of Treasury securities and repo transaction activity is performed without data reporting requirements or oversight by a central clearinghouse.

For instance, high-frequency trading firms, which do not have to register with the Securities and Exchange Commission (“SEC”) or may not be members of the Financial Industry Regulatory Authority (“FINRA”), account for more than 50 percent of the total trading volume in the U.S. Treasury cash markets on any given day. As a result, investors, other market participants, and even regulators have little insight into a majority of these transactions because these firms are not required to report their transaction data or centrally clear their trades.

What We Said. This lack of transparency into the Treasury markets has hamstrung the ability of regulators to maintain fair, orderly, and efficient markets and to ensure adequate liquidity in periods of exceptional market stress. The lack of transparency in one of the most important markets in the world has contributed to several liquidity crises over the past decade, including the March 2020 turmoil.

We commend Treasury for exploring these challenges through the RFI, and we advocate in support of additional reforms that will increase transparency in the Treasury markets, better equip regulators and market participants alike to deal with the risks in these markets, and ultimately reduce the need for extraordinary government intervention to prevent financial crises.

Bottom Line. Better Markets commends Treasury for seeking input on these issues and supports further regulatory action to ensure adequate oversight of this extraordinarily important market.

Read our full Comment Letter here or click the button below.