OPINION: Whither Treasuries?


It has taken US Securities and Exchange Commission Chairman Jay Clayton only for months from raising a trial balloon for the formation of the regulator’s Fixed Income Market Structure Advisory Commission to naming its inaugural participants.

Speaking before the Economics Club of New York, Chairman Clayton suggested that FIMSAC would function similar to the Equities Market Structure Advisory Committee, which the regulator established in 2015, and advise the SEC on ways to improve regulatory efficiency regarding the corporate bond and municipal securities markets.

And like EMSAC, FIMSAC consists of representatives from every stakeholder in the fixed-income market– asset managers, dealers, trading venues, and subject matter experts as well as corporate treasuries and municipalities.

The only issue that I have with FIMSAC is that there no mention within its mandate regarding the $14 trillion US Treasuries market, which is a conspicuous absence.

The continued bifurcation between on-the-run and off-the-run Treasuries continues to expand the liquidity gap between on-the-run and off-the-run liquidity, a serious issue that the market and regulators need to address.

However, should the industry treat the conclusions of the 2015 Joint Staff Report on the October 2014 flash crash as the handwriting on the wall?

To be honest, the report’s action items have a vagueness that only lifetime civil servants can produce. Everything is a matter of “further study” or “continued monitoring.”

Even in the Department of the Treasury’s more recent review of the capital markets, Treasury officials recommend collecting data via FINRA’s TRACE reporting platform.

It might be a matter of timing for the SEC. They could be waiting for a year or two worth of data before engaging in serious discussions of Treasury market reform.

If that were the case, it would be nice if the regulators acknowledged it in FIMSAC’s mandate rather than leaving people scratching their heads.

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