03.24.2021

US Treasury Investors Mixed On Electronic Venue Regulation

Investors skeptical about proposed SEC rules covering electronic trading venues for U.S. Treasuries and U.S. agency securities should keep an open mind toward a regulatory effort aimed at buttressing one of the world’s most important and resilient financial markets.

The resilience of these markets in 2020 is one reason that only 44% of the institutional investors participating in a recent Greenwich Associates study believe markets would benefit from the new rules.

“Our examination of the U.S. Treasury market in 2020 showed that the market structure proved incredibly robust. However, because these markets are so critical to the functioning of the U.S. economy, some new, well-crafted guidance is prudent,” says Kevin McPartland, Head of Research in Greenwich Associates Market Structure and Technology group and author of Exploring Additional Oversight of U.S. Treasury Markets.

The new Greenwich Report explains the proposed regulations and examines the impact of the reforms on this critical market. The rules are relatively modest in scope, and proposed volume thresholds will likely limit the rules’ impact to only central limit order book markets. Three main provisions would cover the venues in that category – required registration as an ATS, creation of fair access standards and adherence to technology safety standards (Reg SCI).

The systemic importance of the U.S. Treasury market cannot be understated. Although the market passed a major test last year, there are more challenges to come. This year will see strong issuance of new bonds and secondary market volatility as the market and the world digest pandemic-related news and the monetary and fiscal policy responses that come with it. As such, it is critical that all market participants continue the discussion about how to modernize not only the technology that powers the market, but also market oversight.

Source: Greenwich Associates

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