[Federal Register Volume 87, Number 122 (Monday, June 27, 2022)]
[Notices]
[Pages 38259-38263]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2022-13540]


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DEPARTMENT OF THE TREASURY

[Docket No. TREAS-DO-2022-0012]


Notice Seeking Public Comment on Additional Transparency for 
Secondary Market Transactions of Treasury Securities

AGENCY: 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 additional post-trade transparency of data regarding 
secondary market transactions of Treasury securities, including 
potential benefits and risks of several examples of potential ways to 
build on existing public transparency.

DATES: Comments are due by August 26, 2022.

ADDRESSES: You may submit comments using any of the following methods:
    Federal eRulemaking Portal: www.regulations.gov. Follow the 
instructions on the website for submitting comments.
    Email: [email protected]. Include docket number TREAS-
DO-2002-0012 in the subject line of the message.
    All submissions should refer to docket number TREAS-DO-2022-0012. 
Please submit your comments using only one method, along with your full 
name and mailing address. We will post comments on www.regulations.gov 
and www.treasurydirect.gov. In general, comments received, including 
attachments and other supporting materials, are part of the public 
record and are available to the public. Do not submit any information 
in your comments or supporting materials that you consider confidential 
or inappropriate for public disclosure.

FOR FURTHER INFORMATION CONTACT: Fred Pietrangeli, Director, Office of 
Debt Management, Office of the Assistant Secretary for Financial 
Markets, at [email protected] or 
[email protected]. Questions about submitting comments 
should be directed to Lori Santamorena, Government Securities 
Regulations Staff, at (202) 504-3632 or [email protected].

SUPPLEMENTARY INFORMATION: 

I. Background

    Treasury, in consultation with other members of the Inter-Agency 
Working Group on Treasury Market Surveillance (IAWG),\1\ is exploring 
the possibility of additional post-trade transparency of data for 
secondary market cash transactions of Treasury securities (which we 
refer to as the ``Treasury securities market'' in this request for 
information).\2\ Providing additional insight into these transactions 
may enhance liquidity by fostering a greater understanding of market 
activity across market segments and supporting the smooth functioning 
of the Treasury securities market. Additional transparency may also 
promote greater competition in the Treasury securities

[[Page 38260]]

market. However, based on the vital roles and unique structure of the 
Treasury securities market, careful consideration is necessary 
regarding how much and in what form information should be made 
available, so that market participants are not disincentivized from 
providing liquidity and one group of participants is not unduly favored 
over another. Specifically, consideration is necessary given 
characteristics of the Treasury market structure that differ from other 
fixed-income markets, such as differences in market segmentation, 
overall volumes, individual trades sizes, types of market participants, 
and methods of execution. Treasury is interested in hearing from the 
public on the potential benefits and risks of several examples of 
potential ways to build on existing public transparency.
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    \1\ The IAWG members are Treasury, the Board of Governors of the 
Federal Reserve System (Federal Reserve Board), the Federal Reserve 
Bank of New York (FRBNY), the Securities and Exchange Commission 
(SEC), and the Commodity Futures Trading Commission (CFTC).
    \2\ In addition, at the November 2021 U.S. Treasury Market 
Conference, Treasury Under Secretary for Domestic Finance Nellie 
Liang highlighted past improvements in data quality and transparency 
and noted Treasury ``will consider ways to improve transparency 
about transactions, such as providing data at a higher frequency, 
building on lessons learned from the recent expanded reporting of 
weekly volumes and recognizing investors' needs to be able to 
transact quickly in large quantities.'' Remarks by Under Secretary 
for Domestic Finance Nellie Liang at the 2021 Treasury Market 
Conference'' (Nov. 17, 2021), available at https://home.treasury.gov/news/press-releases/jy0491.
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IAWG Workstreams

    This request for information regarding additional post-trade 
transparency for secondary market cash transactions of Treasury 
securities is part of the ongoing work of the IAWG to strengthen the 
resilience of the Treasury market across all segments, including cash, 
futures, and financing. As the deepest and most liquid financial market 
in the world, the Treasury market serves several key functions, 
including enabling the financing of the federal government at the least 
cost, providing a safe and liquid asset to support the flow of capital 
and credit to households and businesses, and facilitating the 
implementation of monetary policy. To support these functions and to 
improve Treasury market resilience, the IAWG's work has been organized 
into five workstreams: improving resilience of market intermediation; 
improving data quality and availability; evaluating expanded central 
clearing; enhancing trading venue transparency and oversight; and 
assessing effects of fund leverage and liquidity risk management 
practices.\3\ As outlined in the November 2021 Staff Progress Report 
(Staff Progress Report), IAWG staffs proposed ``transparency that 
fosters public confidence, fair trading, and a liquid market'' as a 
principle to guide public policy decisions in the Treasury securities 
market, and created a workstream on improving data quality and 
availability.\4\ The Staff Progress Report described variations in data 
quality and availability for various Treasury market segments, 
including cash, funding, and derivatives.
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    \3\ Id.
    \4\ ``Recent Disruptions and Potential Reforms in the U.S. 
Treasury Market: A Staff Progress Report'' (Nov. 8, 2021), available 
at https://home.treasury.gov/system/files/136/IAWG-Treasury-Report.pdf.
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    In referring to the March 2020 public release of the TRACE Treasury 
Aggregate Statistics, the Staff Progress Report noted that ``given the 
positive feedback received on the release of this data, and the lack of 
negative market feedback, it is consistent with prior principles to 
explore increasing transparency further.'' \5\
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    \5\ Id.
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Timeline of Treasury TRACE Data Dissemination and Improving Data 
Quality

    Beginning in 2017, the Financial Industry Regulatory Authority 
(FINRA) required its members to report Treasury secondary market 
transactions through its Trade Reporting and Compliance Engine (TRACE) 
and shared this data with Treasury, the Federal Reserve Board, FRBNY, 
the SEC, and the CFTC.\6\
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    \6\ FINRA Regulatory Notice 16-39, available at https://www.finra.org/sites/default/files/notice_doc_file_ref/Regulatory-Notice-16-39.pdf.
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    In 2018, Treasury conducted extensive market outreach and analysis 
to better understand the potential benefits and risks of additional 
public transparency for Treasury securities TRACE transaction data.\7\
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    \7\ ``Remarks of Deputy Secretary Justin Muzinich at the 2019 US 
Treasury Market Structure Conference'' (Sept. 23, 2019), available 
at https://home.treasury.gov/news/press-releases/sm782.
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    Informed by that effort, FINRA, in consultation with Treasury and 
with the approval of the SEC,\8\ began publicly releasing weekly 
aggregate volumes, referred to as ``TRACE Treasury Aggregate 
Statistics,'' in March 2020 based on security type, interdealer or 
dealer-to-customer venue, remaining term to maturity, and whether the 
securities were the most recently auctioned (on-the-runs) or were more 
seasoned (off-the-runs).\9\ The following year, enhancements were made 
to the weekly aggregates, specifically releasing historical data since 
January 2019 and incorporating the 20-year sector to accommodate the 
re-introduction of the 20-year nominal coupon bond.\10\ Market feedback 
has indicated the current release of weekly aggregates provides helpful 
information without negative implications for liquidity, and that 
further transparency could be beneficial.
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    \8\ ``Order Approving Proposed Rule Change To Allow FINRA To 
Publish or Distribute Aggregated Transaction Information and 
Statistics on U.S. Treasury Securities,'' available at https://www.finra.org/sites/default/files/2019-12/SR-FINRA-2019-028-Approval-Order.pdf.
    \9\ ``Now Available--Weekly Aggregated Reports and Statistics 
for U.S. Treasury Securities'' (Mar. 10, 2020), available at https://www.finra.org/filing-reporting/trace/now-available-weekly-aggregated-reports-and-statistics-us-treasury.
    \10\ ``Enhancements to Weekly Aggregated Reports and Statistics 
for U.S. Treasury Securities'' (Apr. 29, 2021), available at https://www.finra.org/filing-reporting/trace/enhancements-weekly-aggregated-reports-statistics-us-treasury-securities.
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    Since receiving the TRACE data, Treasury has coordinated with other 
IAWG members and FINRA to understand how to improve the quality of the 
TRACE data, principally to better inform the official sector, but also 
in consideration of potential additional public transparency. FINRA has 
taken several actions to improve the quality and coverage of the TRACE 
data, including requiring large alternative trading systems (ATS) to 
identify non-FINRA member subscribers (such as principal trading firms) 
on transaction reports,\11\ clarifying the exclusion of auction 
transactions,\12\ and requiring FINRA members to separately report 
transactions that occur within discrete trading sessions on ATSs, 
thereby more clearly identifying who is trading with whom in certain 
instances.\13\
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    \11\ Effective April 1, 2019, large alternative trading systems 
were required to identify non-FINRA member subscriber counterparties 
in TRACE reports to be used for regulatory purposes and not made 
public. See FINRA Regulatory Notice 18-34, available at https://www.finra.org/rules-guidance/notices/18-34.
    \12\ FINRA TRACE Trade Reporting Notice U.S. Treasury Securities 
Auction Awards, available at https://www.finra.org/sites/default/files/notice_doc_file_ref/Trade-Reporting-Notice-010919.pdf.
    \13\ Effective April 12, 2019, a temporary exemption expired 
that permitted aggregate reporting for certain ATS transactions. See 
FINRA Regulatory Notice 19-03, available https://www.finra.org/rules-guidance/notices/19-03.
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    In addition, in consultation with Treasury, FINRA solicited 
comments in December 2020 on potential enhancements to the transaction 
data reported to TRACE.\14\ The potential changes to TRACE reporting of 
Treasury securities transactions would (1) require more granular 
timestamps where applicable, (2) shorten the reporting timeframe from 
end-of-day to within 60 minutes in most cases, (3) standardize price 
reporting, including separating ATS fees, and (4) introduce new 
modifiers to identify non-ATS venues, methods of execution, trading 
units within a firm executing a trade, multi-leg trading strategies, 
and methods used to clear and settle transactions.\15\
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    \14\ FINRA Regulatory Notice 20-43, available at https://www.finra.org/sites/default/files/2020-12/Regulatory-Notice-20-43.pdf.
    \15\ Id.
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    Furthermore, in October 2021 the Federal Reserve Board adopted a 
proposal to require certain depository institutions to report Treasury 
securities transactions to TRACE beginning in September 2022.\16\ 
Reporting by

[[Page 38261]]

depository institutions will fill a key gap in the current TRACE data.
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    \16\ 86 FR 59716 (Oct. 28, 2021).
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Recent FINRA Actions

    Regarding data quality, in May 2022 FINRA filed with the SEC a 
proposal to amend its rules for reporting transactions to TRACE, 
requiring that (1) timestamps for most electronic transactions are 
reported at the finest increment captured by the execution system, and 
(2) transactions are generally reported as soon as practicable but no 
later than 60 minutes.\17\
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    \17\ https://www.finra.org/sites/default/files/2022-05/SR-FINRA-2022-013.pdf.
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    Regarding additional transparency, also in May 2022, the FINRA 
Board of Governors approved the submission to the SEC of a proposal to 
publish aggregated transaction information on Treasury securities more 
frequently, in response to a request from Treasury.\18\
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    \18\ ``May 2022 Board Update'' (May 20, 2022), available at 
https://www.finra.org/about/governance/finra-board-governors/meetings/update-finra-board-governors-post-meeting-May-2022.
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II. Solicitation for Comments

    Treasury is seeking public comment on additional post-trade 
transparency in the Treasury securities market, including potential 
benefits and risks of several options to build on existing public 
transparency.
    Any additional transparency should take into consideration the 
differences among security types and trading venues. For example, on-
the-run fixed-rate nominal Treasury securities are actively traded, 
accounting for an average of about 60% of the weekly volume for all 
Treasury securities,\19\ with a significant portion occurring on 
electronic interdealer platforms. In contrast, other Treasury 
securities, including off-the-run fixed-rate nominal securities, are 
more often traded between dealers and customers, in larger individual 
trade sizes, and are more likely to use voice-based methods or 
electronic request-for-quote. In addition, further differences exist 
between fixed-rate nominal coupons, bills, floating rate notes (FRN), 
Treasury inflation-protected securities (TIPS), and STRIPS (Separate 
Trading of Registered Interest and Principal of Securities).
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    \19\ Treasury staff calculations based on the publicly available 
TRACE Treasury Aggregate Statistics for 2021.
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    Other considerations for the design of additional transparency 
include the timing of reporting of transactions to TRACE and the 
potential for subsequent revisions to reports. Under current FINRA 
rules, FINRA members must generally report transactions by the end of 
the day. As stated above, FINRA's recent proposal would reduce this 
timeframe to 60 minutes. In some instances, transactions may be 
reported late or revised after the reporting timeframe. The current 
weekly aggregate statistics are released with a lag of two business 
days to incorporate most of these late or revised transactions. 
However, after the weekly aggregate statistics are published, they are 
not amended to incorporate additional late transactions or revisions. 
If transaction data were released with a shorter delay, additional 
consideration would need to be given to the potential effects or 
treatment of late or revised transactions.
    Another consideration when evaluating the benefits and risks of 
additional transparency is measuring liquidity. One common definition 
of liquidity in the Treasury securities market is the ability to both 
transact continuously and trade in large quantities at minimal 
cost.\20\ Measuring liquidity generally relies on observing a 
collection of price and quantity metrics, such as the quoted spread 
between bid and offer prices, the depth of resting orders in a central-
limit order book, the replenishment rate of central-limit book orders, 
or the price impact in response to large net flows. Treasury is also 
interested in additional perspectives on how best to measure liquidity 
in the Treasury securities market and how liquidity is likely to change 
with additional transparency of transactions.
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    \20\ For a discussion of measuring liquidity, see ``Joint Staff 
Report: The U.S. Treasury Market on October 15, 2014'' (July 13, 
2015), available at https://home.treasury.gov/system/files/276/joint-staff-report-the-us-treasury-market-on-10-15-2014.pdf, and 
``Notice Seeking Public Comment on the Evolution of the Treasury 
Market Structure,'' 81 FR 3928 (Jan. 22, 2016).
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    More generally, Treasury seeks feedback on security 
characteristics, market structure features, and other factors when 
considering additional transparency, as well as specific 
recommendations to help ensure the public release of information 
appropriately balances the benefits and risks.
    Responses to the following topics will help inform Treasury's 
policy perspectives on additional post-trade data transparency 
regarding the Treasury securities market. Historically, Treasury has 
taken a gradual approach to additional public transparency based on 
feedback from a range of Treasury market participants, including both 
intermediaries and end-user investors. Some market participants have 
expressed concerns regarding the effect of additional transparency on 
the potential willingness and ability of intermediaries to engage in 
large institutional risk transfer in the Treasury securities market, in 
particular for off-the-run Treasury securities. This could in turn 
adversely affect market liquidity including, but not limited to, bid-
ask spread and depth of market and ultimately Treasury's debt issuance 
costs.
    In contrast, other market participants have cited the benefits of 
additional transparency, including post-trade data for use in 
transaction cost analysis and for greater visibility into 
intermediation patterns, which could help inform investor decisions 
around capital allocation to various segments of the Treasury 
securities market.
    Please include in your comments: (1) any data or reasons related to 
your views, including examples; (2) any alternative approaches and 
options that should be considered; and (3) any specific recommendations 
regarding the appropriate form for publicly released transaction 
information. Where appropriate, please distinguish between the 
different Treasury security types (i.e., fixed-rate nominal coupons, 
bills, TIPS, FRNs, and STRIPS), characteristics (e.g., on-the-run, off-
the-run, etc.), and market segments (e.g., interdealer, dealer-to-
customer, etc.). We also welcome comments on any aspect of additional 
post-trade transparency not addressed in this request for information.
1. Benefits and Risks of Additional Public Transparency in the Treasury 
Securities Market
    1.1 What are the main benefits of additional transparency of data 
regarding transactions in the Treasury securities market? Please 
elaborate on the benefits. How should the benefits be measured?
    1.2 What are the main risks of additional transparency of data 
regarding transactions in the Treasury securities market? Please 
elaborate on the risks. How should the risks be measured?
    1.3 In what ways would additional transparency further increase 
public confidence in the Treasury securities market?
    1.4 What types of market participants would benefit from additional 
transparency? Would some market participants derive greater benefit 
from additional transparency relative to others? If yes, please 
elaborate on the types of market participants and the specific 
benefits.
    1.5 What types of market participants would be harmed more from 
additional transparency? Would some market participants derive greater

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harm from additional transparency relative to others? If yes, please 
elaborate on the types of market participants and the specific harms.
    1.6 In what form (e.g., granularity of data, aggregation of data, 
frequency of release, time of day, data format, etc.) would public 
release of Treasury securities transactions market data best balance 
the potential benefits and harms? Please elaborate.
2. Considerations for Additional Public Transparency as it Relates to 
Market Resilience
    2.1 How would additional transparency improve Treasury securities 
market resilience?
    2.2 Please provide specific examples, if applicable, of how 
additional transparency would have helped improve or hurt market 
resilience during recent periods of market volatility such as the 
October 2014 flash rally, the September 2019 repo market pressures, and 
the March 2020 COVID-19 pandemic-related dislocations.\21\
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    \21\ See ``Recent Disruptions and Potential Reforms in the U.S. 
Treasury Market: A Staff Progress Report'' (Nov. 8, 2021), available 
at https://home.treasury.gov/system/files/136/IAWG-Treasury-Report.pdf.
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3. Considerations for Additional Public Transparency as it Relates to 
Market Liquidity
    3.1 How would you define liquidity in the Treasury securities 
market?
    3.2 What data or metrics should be used to measure liquidity in the 
Treasury securities market?
    3.3 How could additional transparency incentivize intermediation or 
otherwise improve Treasury securities market liquidity, if at all? 
Please provide specific examples of how additional transparency could 
improve market liquidity.
    3.4 How could additional transparency disincentivize intermediation 
or otherwise impair Treasury securities market liquidity, if at all?
4. Examples of Additional Transparency
    Note the examples presented in this section are designed to 
illustrate a range of possible degrees of transparency to better 
understand market participants views on the benefits and risks of 
additional transparency. These illustrative examples are not the only 
options for levels of transparency. If market participants have other 
views, please elaborate.
    4.1 Example A. For each individual CUSIP, daily average prices, 
trade count, and traded volumes could be released. Please comment on 
the benefits and risks of this example.
    4.2 Example B. Adding to Example A, transaction-level details could 
be released for on-the-run nominal coupons. Please comment on the 
benefits and risks of this example, including whether transactions 
above a certain dollar value should disclose the actual trade size or 
be subject to caps or additional delays. What specific caps or delays 
would be preferable, if any?
    4.3 Example C. Adding to Example B, transaction-level details could 
be released for every Treasury security. Please comment on the benefits 
and risks of this example, including whether volume caps or delays 
should be tailored to different segments based on the different 
liquidity characteristics of Treasury securities in those segments.
    4.4 Are there other examples that Treasury should consider, or 
modifications to Examples A, B, and C? Please elaborate.
    4.5 In addition to the examples above, what are your views on 
providing transaction-level data with anonymized participant 
identification, with a significant lag, that could either be available 
to the public or only be available to academic institutions for the 
purpose of research?
    4.6 Please indicate which of the above examples you most prefer, or 
if you prefer an outcome not represented in these examples. Please 
elaborate.
    4.7 What are the potential benefits and risks of gradually phasing 
in additional transparency over time? What lessons can be drawn about 
phasing from the implementation of additional transparency in other 
markets? What would be your recommendation for a phase-in schedule?
5. Volumes and Price Considerations and Scope
    5.1 Please describe how volume data could be adjusted for large 
trade sizes if the data is publicly disseminated. For example, should 
large trades be excluded from aggregates, or large volumes capped if 
provided at a transaction level as is done for transparency of certain 
other fixed-income securities? If so, please elaborate on how this 
should be different for on-the-run versus off-the-run securities, 
security type, or maturity segment.
    5.2 Pre- and post-auction when-issued volumes through the end of 
the auction day are currently excluded from the weekly data release. 
What are your views on continuing to exclude this data or separately 
identifying pre- or post-auction when-issued volumes?
    5.3 How should additional transparency vary, if at all, based on 
(a) security type (i.e., fixed-rate nominal coupons, bills, FRNs, TIPS, 
and STRIPS), (b) on-the-run or off-the-run status, (c) maturity, or (d) 
other security characteristics including, but not limited to, average 
trading volumes or trade size?
    5.4 What pricing information would be the most beneficial to 
release, such as end-of-day prices, volume-weighted average prices, or 
transaction-level prices? What pricing information would be most 
harmful to release? Please explain your reasoning and how such 
information would be of use.
    5.5 If price information is aggregated for release, how should the 
pricing information be calculated, such as for a weighted average? Is 
there a certain time of day that prices should be captured, or is there 
a certain time range to calculate averages (e.g., volume-weighted 
prices by tenor from 9 a.m. to 3.30 p.m.)? Is there a preference for 
yield or price or some other pricing convention? Please be specific by 
security type.
    5.6 What types of transactions (e.g., swap box, basis, affiliate, 
and others) should be identified separately due to a different pricing 
convention that could result in prices appearing to be different from 
the prevailing market price if not properly identified? How should 
these trades be identified and represented in the data for public 
dissemination? What is your view on including indicators for 
transactions using a different pricing methodology? Should the pricing 
of different types of transactions be converted to comparable prices? 
Please elaborate on the benefits and risks.
6. Other Trade Characteristics
    6.1 What additional trade details should be released, such as 
counterparty types, whether a trade occurs on an ATS, the type of 
trading venue or venue name, the trade direction (buy or sell), the 
trading protocol (e.g., request-for-quote, central limit order book, 
etc.), or any other details that may be considered? What are the 
benefits and risks of releasing such additional information?
    6.2 The current release provides volume aggregates. How do your 
views change on what, if any, trade details should be released if the 
data is disseminated at the transaction level?
    6.3 When a trade involves two or more reporting counterparties, 
should the transaction reports be matched and consolidated before 
dissemination so that a trade is only reported once? Should only one 
side of each trade be released? What should be done for a

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trade with multiple counterparties (a so-called ``one-to-many'' trade)?
    6.4 Should trades in different market segments or on different 
venues be displayed differently? For example, the interdealer market 
often operates on a microsecond level, often through automated trading 
on electronic centralized order books. In contrast, the dealer-to-
customer market, while utilizing electronic trading more than in the 
past, still exhibits a significant amount of manual or voice-based 
trades. Should these transactions be treated or displayed differently, 
and if so, why and in what way?
7. Late Transactions and Revisions
    7.1 How should late transactions and revisions be addressed in the 
publicly disseminated data?
    7.2 To what extent should the volume of late transactions and 
revisions influence dissemination timing?

Brian Smith,
Deputy Assistant Secretary for Federal Finance.
[FR Doc. 2022-13540 Filed 6-24-22; 8:45 am]
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