SEC moves to unmask high-speed traders in Treasury bond market

The US securities regulator plans to deliver high-speed merchants in Treasury bonds below direct supervision, ushering in additional transparency to one of many world’s most essential monetary markets.

In a unanimous vote, members of the Securities and Trade Fee on Monday proposed steering that will require the buying and selling corporations to register with the company. The transfer would require the merchants to be extra clear about their positions and every day buying and selling exercise.

Bettering the resiliency of the $21tn Treasury market, considered the world’s deepest and most liquid, has been a precedence for Gary Gensler, SEC chair, since his appointment final yr. Treasury securities set borrowing prices for the US authorities and are the benchmark for trillions of {dollars} in different belongings.

Monetary regulators in Washington have expressed concern over the steadiness of the market, significantly since March 2020 when a panic on the onset of the Covid-19 pandemic required the Federal Reserve to step in to purchase giant quantities of Treasuries. On the time, waves of buyers eager to promote their Treasury securities overwhelmed merchants’ capability to purchase and promote.

The SEC guidelines take goal on the lightning-fast principal buying and selling corporations which have elbowed apart once-dominant funding banks and now account for about half of the interdealer market in Treasuries. Many will not be regulated as broker-dealers and never affiliated with banks, and their trades are usually settled with market intermediaries.

“Going from unregistered to registered is an enormous change, full cease,” stated Shane Swanson, a market construction skilled at Coalition Greenwich.

Companies caught within the broadened scope of the principles must meet harder requirements on leveraged positions and so-called internet capital necessities — which require them to take care of sure ranges of capital to guard from giant losses, Swanson stated. Those who management lower than $50mn in belongings could be exempt from the proposed guidelines.

Nevertheless, the SEC stated corporations with $25bn or extra of buying and selling quantity a month could be required to register — an quantity equal to roughly 0.2 per cent of the market’s complete month-to-month buying and selling quantity, stated Kevin McPartland, head of market construction and know-how analysis at Coalition Greenwich. That may imply the principles might be utilized to even comparatively small corporations.

“We predict that is going to offer the SEC with extra transparency into market-making exercise within the charges market, which has lengthy been a change that the official sector has needed to pursue . . . It’s prone to require PTFs to report extra buying and selling exercise and positions held,” stated Mark Cabana, head of US charges technique at Financial institution of America.

The market had extensively anticipated the proposal, which is able to now be launched for public remark. In remarks at an annual Federal Reserve convention in November 2021 on the construction of the Treasury market, Gensler stated that he anticipated the SEC to impose guidelines requiring buying and selling corporations to register as sellers with the fee.

“Requiring all corporations that usually make markets, or in any other case carry out essential liquidity-providing roles, to register as sellers or authorities securities sellers additionally might assist stage the taking part in area amongst corporations and improve the resiliency of our markets,” Gensler stated on Monday.