Revamping the Treasuries Market: US Regulators' Push for Transparency and Stability

📝 SUMMARY: The US Securities and Exchange Commission (SEC) is spearheading an ambitious overhaul of the Treasuries market, targeting an asset class crucial for pricing securities and loans yet plagued by opacity and disruptions. With the market's value exceeding $26 trillion, the reforms focus on modernizing trading infrastructure, amending operating rules, and enhancing disclosure norms, particularly for high-frequency trading firms and hedge funds, which will now need to register as dealers. This registration necessitates higher capital reserves and subjects these entities to intensified regulatory oversight.

The SEC's initiative, championed by Chair Gary Gensler, marks a pivotal shift towards stricter regulation of major market players, equating their roles to that of traditional dealers due to their significant contributions to market liquidity. Additional measures include detailed daily trading reports for recently issued Treasuries, revisions to the confidential Form PF for private fund advisers, and mandates for quicker reporting of adverse financial events. Moreover, a push for more Treasury repurchase agreements and certain cash trades to be centrally cleared is set to reduce counter-party risk.

This regulatory recalibration responds to several liquidity crises over the past decade, exacerbated by the US's ballooning debt and the market's failure to adapt. Incidents such as the 2014 flash rally, the 2019 spike in repurchase agreement rates, and the near-freeze in trading at the onset of the Covid-19 pandemic underscore the need for a more robust and transparent market framework.

While the industry's reaction to these changes is mixed, with some entities considering litigation, others, including major hedge funds and trade groups, support the move towards greater transparency. As the Treasuries market braces for these adjustments, the overarching goal remains a more stable, transparent, and resilient market capable of withstanding future stresses and offering clearer insights into the complex dynamics of global finance.

🔍 SOURCE: https://www.bloomberg.com/news/articles/2024-02-16/why-the-us-treasury-market-is-facing-an-sec-overhaul?srnd=markets-vp