Regulators expect to see greater transparency in Treasury trade reporting in the future and consider relatively recent rule changes as only the first step.
Despite the FINRA rule that requires its members to report Treasury trades to the regulator's TRACE database, nearly a quarter of the market's transactions remain anonymous, according to Securities and Exchange Commission Chairman Jay Clayton.
Speaking at a conference on the evolving structure of the US Treasury market hosted by the Federal Reserve Bank of New York, he noted that it is hard for any regulator to draw broad conclusions when such a sizable portion of the market is anonymous.
Under current market regulations, neither most proprietary trading firms nor banks fall under FINRA's purview and do not need to report their Treasury trades. However, the broker-dealers that operate the major electronic trading platforms report PTF trades, but in a generic and anonymous fashion.
Jay Clayton, SEC
"As a result, TRACE does not provide a complete and detailed audit trail of the Treasury market," said Chairman Clayton.
The Department of the Treasury identified both issues in its capital markets report, which it released earlier this year.
The authors of the report recommended that FINRA change its rule to require the operators of the electronic interdealer broker platforms to identify PTF trades when submitting their transaction data to TRACE as well as supporting the Federal Reserve Board's plan to collect Treasury-transaction data from banks.
"I’m supportive of exploring these approaches and other initiatives that would provide regulators with a complete view of treasury market activities," Chairman Clayton added.
In the meantime, the SEC has found the amount of reportable data that it can access since July has greatly enhanced its ability to monitor and understand activity in the Treasury market despite its current gaps.
“Access to Treasury transaction data allows us to more swiftly reconstruct, analyze, and diagnose the causes and effects of market events like those on October 15, 2014," he said. ".Treasury transactions data also enhances our ability to monitor the market, bolsters our rulemaking and examination, and enforcement capabilities as well as helps us understand, oversees and police the market more efficiently and effectively."
