High-Speed Firms Add New Perspective to Treasury Advisory Group

  • Treasury Borrowing Advisory Committee adds electronic traders
  • High-speed firms now make up about 50% of daily trading volume

The latest meeting of the committee advising the U.S. Treasury on debt management included some new faces -- a pair of representatives from electronic trading firms.

KCG Holdings Inc. and Virtu Financial Inc. are the newest members of the Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association. Known as TBAC, the panel meets with U.S. officials quarterly to discuss debt issuance and borrowing plans. At their first TBAC meeting this month, the two firms joined an influential group that counts among its members banks including Goldman Sachs Group Inc. and money managers such as BlackRock Inc.

The move is a recognition of the increasing prominence of high-speed firms in the $12.8 trillion Treasuries market amid an industry-wide shift toward electronic trading. The committee, governed by federal statute, is appointed by the Treasury, using candidates recommended by current and former TBAC members.

“This is an acknowledgment by the Treasury Department that these types of participants play a much larger role in the market than in the past,”said Amar Reganti, a Boston-based strategist at Grantham, Mayo, Van Otterloo & Co. and a former deputy director of the Office of Debt Management at the Treasury. “This seems prudent for the Treasury to do, given the committee is there to advise the department as to the best way to issue Treasury securities without disrupting the market.”

John Shay, senior vice president of global markets at Virtu, and Isaac Chang, head of KCG’s client Treasury market-making business, were added as new members of the TBAC.

BrokerTec, eSpeed

Asset manager and electronic market maker Citadel LLC, which has previously had a representative from its hedge fund business on the TBAC, is also in a better position to discuss high-speed trading with government officials after Treasurer Daniel Dufresne was named to the committee.

Electronic market-making firms now make up at least half of the volume on Treasury-trading platforms like ICAP Plc’s BrokerTec and Nasdaq OMX Group’s eSpeed, according to a government report published in July. BrokerTec’s average daily U.S. Treasury trading volume was about $165 billion in the year ended in October, according to data from the firm. A decade ago, most Treasury trading was done over the phone with Wall Street dealers.

At its Nov. 4 meeting, the 17-member TBAC and U.S. officials discussed the possibility of the Treasury introducing a two-month bill in response to soaring demand for short-term debt, according to minutes on the Treasury Department’s website. The minutes also announced the committee’s newest members.

Officials from Chicago-based Citadel, New York-based Virtu and Jersey City, New Jersey-based KCG declined to comment. So did Sifma, which helps administer TBAC meetings. Treasury spokesman Rob Runyan declined to comment on the reasons the new members were chosen.

“The Treasury will be better advised about market functioning if it includes a mix of institutions who are very active in it every day,” Reganti said.

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