[Federal Register Volume 81, Number 14 (Friday, January 22, 2016)]
[Notices]
[Pages 3928-3934]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-01246]



[[Page 3927]]

Vol. 81

Friday,

No. 14

January 22, 2016

Part III





Department of the Treasury





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Notice Seeking Public Comment on the Evolution of the Treasury Market 
Structure; Notice

  Federal Register / Vol. 81, No. 14 / Friday, January 22, 2016 / 
Notices  

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DEPARTMENT OF THE TREASURY

[Docket No. TREAS-DO-2015-0013]


Notice Seeking Public Comment on the Evolution of the Treasury 
Market Structure

AGENCY: Office of the Under Secretary for Domestic Finance, Department 
of the Treasury.

ACTION: Notice and Request for Information.

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SUMMARY: The Department of the Treasury (``Treasury'') is seeking 
public comment on structural changes in the U.S. Treasury market and 
their implications for market functioning; trading and risk management 
practices across the U.S. Treasury market; considerations with respect 
to more comprehensive official sector access to Treasury market data; 
and benefits and risks of increased public disclosure of Treasury 
market activity.

DATES: Comments must be received no later than March 22, 2016.

ADDRESSES: Comments may be submitted through the Federal eRulemaking 
Portal (www.regulations.gov). Please follow the instructions for 
submitting comments through the Web site. You may download this 
proposed rule from www.regulations.gov or www.treasurydirect.gov. 
Please submit your comments, along with your full name and mailing 
address. We will not accept comments by fax or email. All comments will 
be posted to www.regulations.gov and on the TreasuryDirect Web site at 
www.treasurydirect.gov.
    Additional Instructions: In general, comments received, including 
attachments and other supporting materials, are part of the public 
record and are available to the public. Do not include any information 
in your comment or supporting materials that you consider confidential 
or inappropriate for public disclosure.

FOR FURTHER INFORMATION CONTACT: For general inquiries, submission 
process questions or any additional information, please email 
TreasuryMarket [email protected] or call (202) 622-2396. If you use a 
telecommunications device for the deaf (TDD) or a text telephone (TTY), 
call the Federal Relay Service (FRS), toll free, at 1-800-877-8339. All 
responses to this Notice and Request for Information should be 
submitted via http://regulations.gov to ensure consideration.

SUPPLEMENTARY INFORMATION: The U.S. Treasury market is the deepest and 
most liquid market in the world.\1\ It plays a critical and unique role 
in the global economy, serving as the primary means of financing the 
U.S. federal government, a significant investment instrument and 
hedging vehicle for global investors, a risk-free benchmark for other 
financial instruments, and an important market for the implementation 
of monetary policy by the Federal Reserve System.
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    \1\ For purposes of this Request for Information (RFI), the U.S. 
Treasury market comprises the secondary market trading of U.S. 
Treasury securities, futures and options on U.S. Treasury securities 
and futures, and securities financing transactions in which Treasury 
securities are used as collateral.
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    The structure of the Treasury market has evolved significantly over 
the past two decades. In particular, technology advancements, and the 
associated growth in high-speed electronic trading has contributed to 
the growing presence of principal trading firms (PTFs),\2\ with these 
firms now accounting for the majority of trading and standing quotes in 
the order book in both futures and interdealer cash markets. By 
contrast, bank-dealers \3\ still account for a majority of secondary 
cash market trading overall (when including dealer-to-customer 
trading), but they comprise well under half of the trading and quoting 
activity in the inter-dealer cash markets. These changes in 
intermediation and the provision of liquidity have coincided with 
significant growth in the U.S. fixed-income market, an evolving 
regulatory and macroeconomic landscape, and potential changes in the 
demand for liquidity by many investors.
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    \2\ For purposes of this RFI, a PTF is defined as an investor 
with the following typical characteristics: Principal investor, 
deploys proprietary automated trading strategies, low latency 
typically key element of trading strategies, may be registered as 
broker or dealer but does not have clients as in a typical broker or 
dealer business model.
    \3\ For purposes of this RFI, bank-dealer refers to a SEC-
registered broker-dealer that is owned by a bank. A non-bank dealer 
is an independent SEC-registered broker-dealer that is not owned by 
a bank. Primary dealers, as designated by the Federal Reserve Bank 
of New York, are a subset of the bank-dealer category in the JSR.
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    Trading in the Treasury cash market occurs across a diverse set of 
venues and modes of execution. Historically, the Treasury cash market 
has been bifurcated between the interdealer market, in which dealers 
trade with one another, and the dealer-to-client market, in which 
dealers trade with their customers (e.g. asset managers, pension funds, 
insurance companies, corporations). In the Treasury cash market, 
customers, also referred to as end users, have not historically traded 
directly with other end users.\4\
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    \4\ For purposes of this RFI, customer refers to an 
institutional customer, to differentiate from a retail customer.
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    Trading in the inter-dealer cash market has evolved significantly. 
Originally, this market had been open almost exclusively to dealers, 
who transacted with each other by telephone. In the early 2000s this 
changed, with inter-dealer brokers launching electronic trading 
platforms and later opening access to those platforms to non-dealers. 
Trading on these platforms has become increasingly automated, with 
transactions conducted using algorithmic and other trading strategies 
involving little or no human intervention. Today, trading on the inter-
dealer platforms bears some resemblance to other highly liquid markets, 
including equities and foreign exchange markets, where PTFs and dealers 
transact in automated fashion, sometimes in large volumes and at high 
speed.
    In contrast, a significant portion of trading in the dealer-to-
customer market occurs on platforms that facilitate the matching of buy 
and sell orders primarily through request for quote (RFQ) systems, not 
central limit order books. These platforms are increasingly electronic, 
but are generally not conducive to automated or high-frequency trading 
strategies. Dealers also internalize a portion of their customer 
flow.\5\ However, it is unclear the extent to which this occurs given 
currently available data.
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    \5\ For the purposes of this RFI, internalization refers to a 
broker filling a customer order either from the firm's own inventory 
or by matching the order with other customer order flow, instead of 
routing the order to an inter-dealer market for execution.
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    Treasury futures are required by law to be traded on a registered 
exchange, and are traded primarily on the Chicago Board of Trade, part 
of the CME Group (CME). Futures transactions traded on the CME are 
centrally cleared at CME's clearinghouse. In the 1990s, futures trading 
began to transition from manual to electronic processes for the 
transmission of orders and information, and the execution of trades. 
Electronic trading eventually became the dominant mode of execution in 
the futures market. Now, more than 95 percent of all on-exchange 
futures trading occur on electronic trade-matching platforms, and 
market participants are increasingly employing automated systems for 
the generation, transmission, management, and execution of orders.\6\
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    \6\ See CFTC Proposed Rule: Regulation Automated Trading, 
December 17, 2015: http://www.cftc.gov/idc/groups/public/@lrfederalregister/documents/file/2015-30533a.pdf.

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    Non-bank proprietary trading firms have long played a significant 
role in the futures market. As the market has evolved to greater levels 
of electronic trading, they have increasingly employed automated 
trading strategies, and increasingly moved into the Treasury cash 
market. Today, PTFs represent a majority of trading in Treasury futures 
and inter-dealer cash markets.
    On July 13, 2015, the staffs of the Treasury, the Board of 
Governors of the Federal Reserve System (``Board''), the Federal 
Reserve Bank of New York (``FRBNY''), the U.S. Securities and Exchange 
Commission (``SEC''), and the U.S. Commodity Futures Trading Commission 
(``CFTC'') (collectively, the ``Joint Staffs''), published the Joint 
Staff Report: The U.S. Treasury Market on October 15, 2014 
(``JSR'').\7\ The JSR analyzed the extraordinary volatility in the 
Treasury market on the morning of October 15, 2014, and identified four 
next steps for further work: (1) Further study of the evolution of the 
U.S. Treasury market and the implications for market structure and 
liquidity, (2) continued monitoring of trading and risk management 
practices across the U.S. Treasury market and a review of the current 
regulatory requirements applicable to the government securities market 
and its participants, (3) an assessment of the data available to the 
public and to the official sector on U.S. Treasury cash securities 
markets, and (4) continued efforts to strengthen monitoring and 
surveillance and promote inter-agency coordination related to the 
trading across the U.S. Treasury market.
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    \7\ Joint Staff Report: The U.S. Treasury Market on October 15, 
2014: http://www.treasury.gov/press-center/press-releases/Documents/Joint_Staff_Report_Treasury_10-15-2015.pdf. The findings in the JSR 
were based in part on transaction-level, non-public data that staff 
obtained from the primary locations for price discovery in the 
Treasury market, the Chicago Mercantile Exchange for futures and 
BrokerTec and eSpeed for cash securities.
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    Treasury is seeking public comment on several specific questions 
that will inform the ongoing work related to the next steps identified 
in the JSR. This RFI is intended, in part, to seek information and 
viewpoints from a diverse group of stakeholders, including the general 
public, buy and sell-side market participants, academics, and industry 
groups regarding these and other structural changes in the Treasury 
market, and their implications for the depth, liquidity, and 
functioning of the market. This RFI is also intended to develop a 
holistic view of trading and risk management practices across U.S. 
Treasury futures and cash markets--including the various trading venues 
and modes of execution present in the cash market--and it seeks input 
on potential improvements in Treasury market policies, practices, and 
conduct.
    Given the market evolution, access to timely and comprehensive data 
across related markets is increasingly important to fully assess new 
developments, and analyze market events. Accordingly, we are interested 
in the most efficient and effective ways for the official sector to 
obtain additional market data and in ways to more effectively monitor 
diverse but related markets. Finally, we are interested in the 
potential benefits and costs of additional transparency with respect to 
Treasury market trading activity and trading venue policies and 
practices.
    Treasury developed this RFI in consultation with the Joint Staffs. 
The responses to this RFI will further enhance our understanding of the 
changes underway in the Treasury market and will help to inform the 
ongoing work related to the next steps identified in the JSR as well as 
any policy responses. This is intended to be a comprehensive list of 
questions. Depending on your role and/or interest in the Treasury 
market, you may choose to answer only certain questions.

I. Further Study of the Evolution of the U.S. Treasury Market and the 
Implications for Market Structure and Liquidity

    Treasury is interested in the various factors driving the evolution 
of the Treasury market discussed above, and their implications for 
market functioning. These factors include changes in technology, the 
growing prevalence of automated trading, changes in market making, 
financial institutions' risk tolerance and business models, shifts in 
buy and sell-side participation, post-crisis regulatory reforms, as 
well as any other factors respondents to this RFI may identify. We are 
also interested in the changing nature of liquidity and liquidity 
provision in the U.S. Treasury market.
    By some metrics, the liquidity and efficiency of trading in the 
U.S. Treasury market are as robust as they have ever been. For example, 
bid-ask spreads have remained steady at very low historical levels. But 
the changes in market structure also raise questions about evolving 
risks, such as whether an improvement in average liquidity conditions 
may come at the cost of rare but severe bouts of volatility that 
coincide with significant strains in liquidity. The changing nature of 
liquidity also suggests that measures used to estimate liquidity may 
need to be enhanced in order to broaden our understanding of the state 
of the market, both during normal and stressed market conditions.

Questions for Public Comment

    Treasury requests comment on the questions below. These questions 
are intended to solicit views on the implications of changes to U.S. 
Treasury market structure, including changes to financing markets 
(i.e., the repurchase agreement market) using Treasury securities, for 
liquidity provision, and market functioning. We also welcome any input 
on the current market structure and how participants believe U.S. 
Treasury market structure will evolve in the coming years.
    1.1 Have there been changes in the nature of liquidity provision, 
or demand for liquidity, in the U.S. Treasury market? If so, are these 
trends different in the futures, dealer-to-customer, or interdealer 
broker (``IDB'') market, or in the ``on-the-run'' and ``off-the-run'' 
sectors, or across different types of Treasury securities (e.g. bills, 
nominal fixed rate coupon securities, nominal floating rate securities, 
and inflation-indexed securities)? Which factors have been responsible 
for any observed trends in liquidity provision and/or demand? In 
addressing those questions, please consider the dealer-to-customer 
market, trading on IDB platforms, and in the futures market, as 
applicable, and please provide or refer to data and/or analysis that 
support your conclusion. In addition, please consider the following 
questions, as applicable:
    a. How do you define liquidity? How do you define liquidity 
provision?
    b. Which measures are most indicative of the degree of liquidity? 
How might these measures be refined or expanded, if you were not 
limited by the availability of data?
    c. How do different indicators provide information on different 
aspects of liquidity, and in what ways?
    d. Which measures best represent the resilience of liquidity, or 
the relationships between liquidity and volatility?
    e. To what extent are these measures of liquidity and the 
resilience of liquidity different from measures used in other markets 
that have witnessed similar market structure changes? What are the 
idiosyncratic factors unique to Treasury cash markets that may cause 
these measures to differ?
    f. What changes, if any, have you observed in these measures over 
recent years? Over recent months?

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    g. What microstructure features of the U.S. Treasury futures and 
cash markets, including both IDB venues and dealer-to-client markets, 
have affected the functioning, liquidity, efficiency and participation 
in these markets? What features have affected the functioning of the 
Treasury market as a whole?
    1.2 What changes, if any, have you made or observed in investment, 
hedging, and trading practices in response to shifts in Treasury market 
structure?
    1.3 How does the way in which you transact in or provide liquidity 
to the U.S. Treasury market change during periods of stress?
    1.4 Looking forward, do you anticipate significant changes in the 
structure of the U.S. Treasury market absent further regulatory 
changes? What would be the key benefits and/or risks of these changes 
in market structure? What key factors are likely to drive these 
changes? What changes are you planning to your firm's investment and 
trading policies, strategies, and practices?
    1.5 What changes to the U.S. Treasury market structure, whether 
through public or private sector initiatives, might be advisable given 
the recent and expected future evolution? What role should the public 
sector play in driving or facilitating these changes?
    1.6 What are the benefits and risks from the increased speed with 
which secondary market transactions take place? Do these benefits and 
risks differ across individual products (e.g. on-the-run versus off-the 
run securities)? How have market participants and trading venues 
responded to, or facilitated, improvements in speed, and how, if at 
all, should policy makers respond?
    1.7 To what extent have changes in Treasury financing markets 
affected liquidity in cash Treasury markets, and what is the best 
evidence of those effects? Looking forward, do you anticipate major 
changes in the Treasury financing markets and how would this impact the 
functioning of the cash Treasury markets? How have firms modified their 
trading strategies in response to, or in anticipation of, these 
changes? What changes in Treasury financing markets could improve 
market efficiency? What are the potential benefits and risks to the 
Treasury market of increased access to central clearing of Treasury 
repurchase agreement (``repo'') transactions?
    1.8 What share of trading (in the case of dealers, your own 
trading) is internalized? To what extent does it vary depending on 
security type (e.g., on-the-run, off-the-run)? How has this changed 
over time and how do you expect it to develop? What implications for 
the Treasury market, if any, do you see as a result of these 
developments?

II. Continued Monitoring of Trading and Risk Management Practices 
Across the U.S. Treasury Market and a Review of the Current Regulatory 
Requirements Applicable to the Government Securities Market and Its 
Participants

    The introduction and rapid growth of electronic and automated 
trading protocols by many participants in the U.S. Treasury market over 
the past two decades have brought benefits as well as challenges to 
trading practices and risk and internal control systems. Risk controls 
at firms and trading venues must be able to monitor order and trade 
activity at the increased speeds made possible by this automation. In 
recent years, many trading platforms and firms have updated their risk 
management practices to better align them with a faster and more 
complex trading environment. The public and private sectors have 
collaborated to establish best practices for transacting in the modern 
Treasury market. In particular, the Treasury Market Practices Group 
(``TMPG'') recently updated its Best Practices for Treasury, Agency 
Debt, and Agency Mortgage Backed Securities Market by incorporating 
recommendations related to automated trading in TMPG covered 
markets.\8\ The updated TMPG best practices recommended that all 
Treasury market participants incorporate best practices in their 
operations in order to promote trading integrity and to support an 
efficient marketplace.
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    \8\ Best Practices for Treasury, Agency Debt, and Agency 
Mortgage-Backed Securities Markets: http://wcapps.ny.frb.org/tmpg/TPMG_June%202015_Best%20Practices.pdf.
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    The trend toward increasingly automated trading, including 
algorithmic trading strategies, is also being addressed by various 
regulatory efforts underway, particularly by the SEC and the CFTC. 
Among the next steps identified in the JSR is a review of the 
regulatory requirements applicable to the government securities market 
and its participants. The Government Securities Act (GSA) of 1986, as 
amended, provides for the registration of government securities brokers 
and dealers engaging in transactions in government securities and 
requires Treasury to adopt rules with respect to financial 
responsibility and related practices of government securities brokers 
and dealers.\9\ The Treasury, SEC, and the federal bank regulators, 
regulate government securities brokers and dealers in the Treasury 
market. The CFTC regulates the futures markets, including the Treasury 
futures markets, and many of its participants.
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    \9\ See Public Law 99-571, October 28, 1986 and Public Law 103-
202, December 17, 1993.
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    In order to prevent fraudulent and manipulative acts and practices 
and to promote just and equitable principles of trade, the GSA also 
authorizes the appropriate regulatory agencies (the SEC and federal 
bank regulators) to issue regulations, in consultation with Treasury, 
with respect to transactions in government securities for the entities 
they regulate.\10\ The enforcement authority for these rules sits with 
the SEC, the Financial Industry Regulatory Authority (``FINRA'') or the 
appropriate federal bank regulator. Based on the current statutory 
scheme, there are several differences in the regulatory requirements 
applicable to the government securities market as compared to other 
U.S. securities, commodities and derivatives markets that may be worthy 
of examination.\11\
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    \10\ Ibid.
    \11\ There are differences in the current regulatory 
requirements applicable to the government securities market as 
compared to other U.S. securities, commodities and derivatives 
markets. For example, SEC rules applicable to alternative trading 
systems do not apply to alternative trading systems through which 
only government securities are traded (although such venues may 
voluntarily adopt such standards). Real time public reporting rules 
applicable to transactions in other securities and derivatives do 
not apply to transactions in Treasury securities. Large non-broker 
and non-dealer participants in the government securities market are 
not required to register (unlike large swap market participants).
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Questions for Public Comment

    We request comment on the questions below. We are interested in 
what further steps the public and private sectors can take to address 
any outstanding risks, including operational risks to market 
functioning and risks to market integrity. We are also interested in 
the extent to which rules and practices applicable in other markets may 
be effective, in whole or in part, in improving the resilience of U.S. 
Treasury markets.
    2.1 Are the risk management controls currently in place at U.S. 
Treasury cash and futures trading venues, as well as firms transacting 
in those venues, properly calibrated to support the health of the U.S. 
Treasury market? Why or why not? Please list the types of controls that 
are employed, as well as planned changes or improvements. In addressing 
these questions, please consider the dealer-to-customer market, trading 
on IDB platforms, and the futures market, as applicable. In addition, 
please consider the following questions:

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    a. What policies and risk management practices at U.S. Treasury 
cash and futures trading venues, as well as at firms transacting in 
those venues, could be improved or developed to mitigate potential 
risks associated with increased automation, speed, and order 
complexity? Please consider the risks posed by trading, risk transfer, 
and clearing and settlement.
    b. To what extent should venue-level risk management practices be 
uniform across Treasury cash and futures trading venues? For example, 
should there be trading halts in the Treasury cash market and should 
they be coordinated between Treasury cash and futures markets, and if 
so, how? Should Treasury cash, futures, options, and/or swaps venues 
coordinate intraday risk monitoring, and if so, at what frequency? If 
there were trading halts, how should they be implemented for bilateral 
trading activity in the Treasury cash market? What would be the primary 
challenges in implementing such trading halts, particularly given that 
trading in the U.S. Treasury cash market is over-the-counter, global in 
nature, and conducted on a 24-hour basis? \12\
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    \12\ Currently, under the GSA Treasury does not have the 
statutory authority to suspend trading or establish limit up/limit 
down thresholds for Treasury securities.
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    c. To what extent should U.S. Treasury cash market platforms be 
responsible for monitoring, identifying, and/or reporting suspicious 
trading activity?
    2.2 What internal risk controls are commonly employed by firms 
using automated, including algorithmic, trading strategies in the 
Treasury cash market? Are these different or similar to those used in 
the Treasury futures markets, and what are the reasons for any 
differences? How are such controls designed and triggered? How 
frequently are they triggered? What internal process controls commonly 
govern the implementation and modifications of trading algorithms?
    2.3 What types of algorithmic trading strategies are commonly used 
by participants in the U.S. Treasury market? What features do those 
strategies have in common, and what features differ across strategies? 
What are the potential benefits and risks to an effective U.S. Treasury 
market functioning resulting from certain algorithmic trading 
strategies, certain order types, and/or particular trading venue 
policies or practices.
    2.4 How are best practices used in evaluating, and updating, risk 
management systems at a given firm? How does your firm make use of 
TMPG's best practices (referenced above) for operations in the Treasury 
cash market? How can best practice recommendations be utilized in order 
to reinforce market integrity? What are the benefits and limitations of 
best practice recommendations?
    2.5 What are the benefits and risks associated with the current 
structure for clearing and settling Treasury securities transactions in 
the dealer-to-customer market and on IDB platforms, as applicable. For 
example:
    a. Are intraday margining practices in the Treasury cash market for 
both cleared and non-cleared transactions currently sufficient to 
protect against counterparty risk, especially in light of the speed at 
which positions can be accumulated? What options are available to 
improve margining practices? Should the maximum potential intraday 
exposure of firms be calibrated relative to their level of capital? If 
so, how should it be calibrated? Are alternative measures of potential 
exposure more meaningful for automated trading strategies, and if so, 
which type of measures?
    b. Currently, there are no statutory requirements that require 
participants to centrally clear cash Treasury transactions. Should such 
a requirement apply to any participants, particularly those with large 
trading activity or large positions? Would the secondary market for 
cash Treasury securities benefit from broader participation in 
centralized clearing? Why or why not?
    2.6 Many of the standards applicable to U.S. securities, 
commodities, and derivatives markets are not applicable to the U.S. 
Treasury cash market. Which differences, if any, should be addressed 
and how should standards be aligned? How will these affect the cost of 
accessing or participating in these markets, as well as of transacting 
in these markets? Would there be any implications to U.S. federal 
government borrowing costs? In addressing these questions, please 
consider the dealer-to-customer market, trading on IDB platforms, and 
the futures market, as applicable. In addition, please consider the 
following:
    a. What implications would a registration requirement for firms 
conducting certain types of automated trading, or certain volume of 
trading, in the U.S. Treasury market have on market structure and 
efficiency, investor protection, and oversight?
    b. Should firms that conduct certain types of automated trading, or 
certain volume of trading, in the U.S. Treasury market be subject to 
capital requirements, examinations and supervision, conduct rules, and/
or other standards? What would be the implications of each?
    2.7 Should self-trading be expressly prohibited in the cash 
Treasuries market? \13\ Does self-trading provide any benefits to the 
markets? Are there risk management tools, either at trading firms or at 
trading platforms, which can effectively reduce levels of self-trading 
and improve trading efficiencies?
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    \13\ For purposes of this RFI, self-trading is defined as a 
transaction in which the same legal entity takes both sides of the 
trade so that no change in beneficial ownership results.
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III. An Assessment of the Data Available to the Official Sector on U.S. 
Treasury Cash Securities Markets

    The analysis presented in the JSR was based on cash and futures 
transactions and order book information, with the cash data provided by 
the IDB platforms and the futures data obtained through the CFTC as 
part of its oversight of the CME. Transaction data for the U.S. 
Treasury futures market is provided daily to the CFTC, and order book 
data is available to the CFTC upon request. This transaction data 
includes time, volume, price, and counterparty information. The 
official sector does not currently receive any regular reporting of 
Treasury cash market transactions. The JSR did not include any analysis 
of dealer-to-customer data, although certain dealer-to-customer data 
was subsequently obtained for the purpose of additional analysis of 
October 15, 2014 and the control days analyzed in the JSR.
    The need for more comprehensive official sector access to data, 
particularly with respect to U.S. Treasury cash market activity, is 
clear. Given the benefits of enhanced transparency among all official 
sector stakeholders into trading activity across both the cash and 
futures markets, we are interested in views regarding the most 
efficient and effective way to collect, aggregate, and appropriately 
monitor U.S. Treasury cash and futures markets data. We are also 
interested in the additional infrastructure that would be necessary for 
market participants to begin reporting comprehensive U.S. Treasury 
market transaction data to the official sector, especially given the 
diversity of trading venues in the Treasury cash markets. Finally, we 
are interested in views on how to utilize transmission protocols, data 
standards, and identifiers to facilitate data integration, and to 
support continued coordination among the Joint Staffs.
    Activity related to U.S. Treasury markets trading often extends 
beyond

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individual regulator boundaries; it encompasses not only the primary 
and secondary cash securities markets, but repurchase agreement 
markets, futures contracts which reference U.S. Treasuries, and U.S. 
Treasury exchange-traded funds traded as equities. This diversity in 
trading venues and participants often leaves any individual regulator 
with only a partial view of U.S. Treasury market risk transfer and 
price discovery. Data from across the U.S. Treasury cash and futures 
markets is necessary to conduct comprehensive analysis or surveillance 
of these markets, which are tightly integrated and across which market 
participants conduct trading activity. As firms are able to access 
multiple markets over very short time frames, these markets become ever 
more interconnected, resulting in significantly faster risk and 
information transmission. These trends call for continued cooperation 
among the official sector to ensure that the monitoring of market 
activity and liquidity is as effective and coordinated as possible.
    The Inter-Agency Working Group for Treasury Market Surveillance 
(``IAWG'') was formed to improve monitoring and surveillance, and 
strengthen interagency coordination with respect to the U.S. Treasury 
markets following the Salomon Brothers auction bidding scandal in 1992, 
and today consists of the Joint Staffs.\14\ Since its inception, it has 
been useful in providing a regular forum for the participating entities 
to collaborate on issues related to U.S. Treasury market structure, 
functioning, and participation, such as the events of October 15, 2014. 
To facilitate the continued monitoring of U.S. Treasury market 
activity, the Joint Staffs are working to complete a standing 
information sharing agreement.
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    \14\ The IAWG was formed in 1992 by the Treasury, the SEC, and 
the Board, to strengthen monitoring, surveillance and interagency 
coordination in respect to the Treasury market. Its initial efforts 
were focused on developing a framework for enhanced market 
surveillance for Treasury Securities. See U.S. Department of the 
Treasury, Securities and Exchange Commission, and Board of Governors 
of the Federal Reserve System, Joint Report on the Government 
Securities Market (U.S. Government Printing Office, January 22, 
1992), at xii-xiv. http://www.treasury.gov/resource-center/fin-mkts/Documents/gsr92rpt.pdf. See also The U.S. Department of the 
Treasury, Securities and Exchange Commission, and Board of Governors 
of the Federal Reserve System, Joint Study on the Government 
Securities Market (U.S. Government Printing Office, March 1998), 
http://www.treasurydirect.gov/instit/statreg/gsareg/gsareg_gsr98rpt.pdf. See also Official Surveillance and Oversight of 
the Government Securities Market, William J. McDonough, FRBNY 
Quarterly Review, Spring 1992-93.
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Questions for Public Comment

    We request comment on the questions below. The questions in this 
section of the RFI seek information about which U.S. Treasury market 
data the official sector should have regular and ongoing access to. We 
are also interested in views regarding the potential for additional 
coordination across futures and cash markets, as well as interest rate 
swaps and options. These questions relate to the provision of U.S. 
Treasury market data to the official sector. Accordingly, while there 
may be considerations regarding data dissemination to the public that 
may be relevant to the answers to the questions posed in this section, 
those considerations should not factor into the answer to these 
questions (unless otherwise noted), but should be addressed, to the 
extent applicable, in Section IV.
    3.1 To what extent can trading practices in U.S. Treasury cash and 
futures markets be effectively monitored using only transaction and/or 
order data from one, not both, of those markets? Is it necessary for 
regulators to have visibility across all U.S. Treasury cash and 
derivative markets in order to more effectively monitor and oversee 
trading behavior in any one market? What aspects of U.S. Treasury 
market monitoring require data collection across cash and derivatives 
markets?
    3.2 What frequency and type of additional data reporting to the 
official sector is necessary for it to effectively monitor functioning 
of the U.S. Treasury markets, including cash, futures, and financing 
markets? What level of data granularity is necessary for sufficient 
monitoring to be performed (e.g., transaction data, inventories or 
positions, order book data, and other additional data) across venues?
    a. Should all transactions in securities issued by Treasury be 
subject to reporting or should reporting be limited to secondary market 
transactions, on-the-run benchmark issues, or some other subset of 
securities?
    b. Should repurchase agreement transactions be reportable?
    3.3 What criteria should be used to determine who should report to 
the official sector? Should both counterparties (buyer and seller) be 
required to report a trade or is one-sided reporting preferable? Should 
reporting requirements depend on the platform or execution method? 
Should only a subset of participants, such as brokers, dealers, futures 
commission merchants (FCMs) and commercial bank dealers be required to 
report transactions? Should other parties to a transaction, such as 
banks and PTFs, be required to report? Should trades executed on 
automated trading venues be reported by those venues and not the 
individual brokers, dealers, FCMs, bank dealers, etc. transacting on 
such venues?
    3.4 Should transaction reporting include identifiers for categories 
of end investors? What are the costs and benefits of this approach? 
What alternatives should be considered to permit monitoring of 
positions and market activity?
    3.5 For those instruments subject to official sector reporting 
requirements:
    a. Should all transactions be subject to the same reporting time 
requirement? Are the answers different for different types of 
transactions or instruments?
    b. Should cross market transactions have special indicators to link 
the different legs of the transactions?
    c. Are there specific trades and/or trading strategies that should 
be considered for additional identification to ensure that regulatory 
organizations can accurately interpret the data (similar to Dollar 
Rolls or Stipulations on deliverable collateral in mortgage to-be-
announced trading)?
    d. Are there other industry practices and/or special situation 
information that should be considered for reporting?
    e. Should trade allocations be reported? Are there any special 
pricing issues that should be considered (e.g. mark ups, commissions, 
ATS fees) or is dollar price adequate for determining the price of the 
trade?
    f. Should settlement date and/or other settlement terms be 
reportable?
    g. Are there any special considerations/conditions for determining 
the time that a trade is executed? Does this differ across trade types 
or venues?
    h. Should transactions executed on an ATS and/or in response to an 
electronic RFQ be identified as such? Should the specific ATS and/or 
RFQ platform be identified as part of the transaction report? Are there 
unique characteristics of such transactions that should be identified? 
Should the order type giving rise to a particular execution be 
captured? Are there any other unique methods of transacting in the 
Treasury market that should be identified?
    i. Should transaction counterparties be identified uniquely or 
categorized by counterparty type? If the latter, what counterparty 
types should be identified? Are there generally accepted definitions 
for these categories of counterparties?
    j. For transactions that are already subject to reporting 
requirements to the official sector, are there particular data 
standards or identifiers that should be used for the reporting of 
transactions in

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the Treasury cash market to aid harmonization? What transmission 
protocols, data standards and identifiers should be utilized to enhance 
authorities' ability to integrate data, share information and cooperate 
on analysis, for both existing and new data reporting?
    k. Should the identification of registered market participants be 
``normalized'' across U.S. Treasury cash and futures transactions such 
that there is a consistent and unique moniker used to identify each 
individually registered entity?
    3.6 For those securities subject to official sector reporting 
requirements:
    a. Should quotes and/or orders be reported? If so, should special 
consideration be made for certain types of quotes and/or orders (e.g., 
electronically submitted orders versus voice orders versus RFQ)? Are 
there any special considerations when defining an order and/or quote? 
How will these special considerations affect the ability of the 
official sector to analyze activity in the Treasury cash markets?
    b. Should transactions, quotes, and/or orders be reported on a real 
time basis? If not, what should be the reporting standard? How should 
orders that are executed over multiple days be handled? Are there other 
special considerations when defining the time of an order?
    c. Are there additional elements that are important for regulators 
to understand beyond the categories of quote/order originator, price, 
size and time of the order (e.g., inventory or position data)? Should 
the type of an order or any special order instructions be collected? 
Should all order changes be reported? Is the answer different for 
electronically submitted versus voice submitted orders?
    d. Should the submitter of a quote and/or order be identified 
uniquely or categorized by counterparty type? If the latter, what 
counterparty types should be identified? Are there generally accepted 
definitions for these categories of counterparties?
    3.7 Is it appropriate to have transactions, orders, and quotes time 
stamped at a certain clock precision (e.g., microsecond) level? Are the 
answers to these questions different for different types of 
transactions (e.g., electronic or voice) or different products (e.g., 
Treasury bills, notes, bonds, on-the-runs, off-the-runs, cash, or 
futures)? Would the answer be different for trade reporting, quote 
reporting, or order reporting? Would the answer be different for 
different categories of market participants?
    3.8 Do commercial bank dealers and broker-dealers have technology 
infrastructures and order/execution handling in place to report trades 
on a continuous basis?
    3.9 As the official sector begins to collect additional data on the 
cash U.S. Treasury market, what operational or market factors should be 
assessed? Are there particular negative consequences from the 
implementation of data collection? If so, what are they and why do they 
arise?
    a. The official sector may consider different methods for receiving 
transaction data from Treasury markets. For instance, it may rely on 
existing reporting regimes, or it may seek to build an alternative 
reporting system. If the latter, what alternative reporting system 
should be used? What are the costs and benefits with these different 
approaches? Would one approach impose fewer burdens on reporters than 
others? If so, why and by how much?
    b. Would one approach impose fewer burdens on smaller reporters 
than another? If so, why and by how much?
    c. Is the answer different for trades, orders, quotes, or execution 
methods?
    3.10 What additional infrastructure would be necessary for market 
participants to begin reporting comprehensive U.S. Treasury market 
transaction data? Should reporting requirements be phased in? If yes, 
how and why? Does phasing affect the cost of implementation for market 
participants? What transmission protocols, data standards and 
identifiers should be utilized to minimize reporting burdens?
    3.11 Will the requirement to report transactions in the Treasury 
markets affect competition in this market? Who would be affected and 
how? What data or empirical evidence support this position?

IV. An Assessment of the Data Available to the Public on U.S. Treasury 
Cash Securities Markets

    The extent of publicly available information for U.S. Treasury 
markets, including that related to market prices, trading volumes, 
market participant inventories, and trends in market risk and 
liquidity, is substantially more limited than for many other major 
asset classes. For example, there are no public reporting requirements 
for transaction or order book information with respect to transactions 
in Treasury securities. In addition to obtaining the appropriate data 
for the official sector, we are committed to continuing to 
appropriately enhance the information made public about the U.S. 
Treasury market.
    Making appropriate data available to the public more broadly 
regarding trading activity in the U.S. Treasury market could support 
investor confidence and the liquidity of these markets. Greater price 
transparency could improve efficiency, reduce transaction costs, 
enhance fairness, improve risk management practices and encourage 
participation by new entrants, who may otherwise be reluctant to engage 
in a market where they have less information than their counterparties. 
Greater operational transparency also may be desirable with respect to 
the practices governing trading and access at the various trading 
venues. Visibility into order types, access rules, and rulebooks may 
encourage greater competition and a more level playing field for market 
participants.
    However, the U.S. Treasury cash market is not uniform. More 
recently-issued on-the-run securities trade largely on electronic 
platforms that match orders using a central limit order book. Seasoned, 
or off-the-run, securities generally still rely on dealers to 
intermediate transactions. Some types of transparency may inhibit the 
willingness to engage in large so-called ``block'' trades by large 
investors and intermediaries. This reluctance may be particularly true 
in the less liquid parts of the U.S. Treasury market, where concerns 
about moving prices or revealing positions are stronger. In markets 
with more formal regulations pertaining to pre- and post-trade 
transparency, the rules provide flexibility for block-sized trades. For 
example, trades above a certain size could be executed away from 
platforms with pre-trade transparency, and such trades could be 
reported to the marketplace with some delay. Related rules also allow 
for masking of the size of large transactions to help mitigate the 
concern of higher market impact costs. The futures markets also require 
that net positions greater than specified thresholds (for all market 
participants and not just entities subject to registration 
requirements) be reported to the market regulator.

Questions for Public Comment

    We request comment on the questions below. We are interested in the 
appropriate level and form of data about Treasury market activity that 
should be made available to the public. This includes use of 
transmission protocols, data standards and identifiers to facilitate 
the public's ability to link and integrate data.
    4.1 Is the publicly available information for U.S. Treasury market

[[Page 3934]]

trading activity sufficiently transparent to foster an efficient, 
healthy, and liquid market? What changes to public reporting would be 
most advisable, if any, including the use of data standards and 
identifiers?
    4.2 What additional information should be made available to the 
public in order to better assess liquidity conditions in the U.S. 
Treasury market, and at what frequency? For instance, should there be 
readily available transaction cost data that accounts for price 
movements that occur from the initiation of a trade request on RFQ 
platforms?
    4.3 If additional public transparency is necessary at the 
transaction level, what is the most appropriate level of transparency 
for publicly available data on trading in the secondary market? Should 
additional public transparency be phased in over time in any way? 
Should all quotes and/or orders in the inter-dealer market be made 
public, or just ``top of book''? What characteristics should be 
reported (e.g., participant type, aggressor side, volume, price)? 
Should the release of any or all of the data be in real time or 
delayed? Should the available data differ depending on the age of the 
security, size of the transaction or other characteristics of a 
particular security or transaction?
    4.4 Is there an existing public reporting model that would be 
appropriate, in whole or in part, for the U.S. Treasury market (e.g., 
swap data repositories for swaps, or FINRA's Trade Reporting and 
Compliance Engine (TRACE) for corporate bonds and agency mortgage-
backed securities), or would the Treasury market benefit from a new 
model?
    4.5 What additional information should be available to the public 
about the operation of trading platforms or trade execution algorithms 
on trading platforms (for inter-dealer as well as dealer-to-customer 
platforms)? For example:
    a. Should information about order types, agreed upon fee 
arrangements, user agreements, and/or brokerage agreements be 
disclosed?
    b. Should the degree to which subscribers to the platform may limit 
their interaction with or exposure to other subscribers be disclosed?
    c. Should the degree and extent to which the sponsor of a platform 
trades on the platform be disclosed?

David R. Pearl,
Office of the Executive Secretary.
[FR Doc. 2016-01246 Filed 1-21-16; 8:45 am]
BILLING CODE 4810-AS-P