Treasuries Need Tough Rules Similar to Stocks, SEC Head Says

  • Regulators need ‘full access’ to trading data, White says
  • Some firms also should have to register as dealers, she says

Wall Street’s main regulator wants rules for the $13.7 trillion U.S. Treasuries market to look more like those imposed on stocks.

Regulators need “full access” to Treasury trading data and public reporting should be increased so that the market is more transparent for investors, U.S. Securities and Exchange Commission Chair Mary Jo White said Monday. She said firms that buy and sell Treasuries for their own accounts also should have to register as dealers and face tougher rules and routine inspections by SEC examiners. Platforms where Treasuries are traded should also fall under stricter oversight, White added.

“The controls we put in place around trading practices in many cases should apply to U.S. Treasury securities as well as equities, especially where those practices can threaten to destabilize markets or hurt investors,” she said during a speech in New York. Regulations for trading platforms “have historically not reached activities in the U.S. Treasury market to the same extent as activities in the equity markets. It is time for change.”

While investors have long considered Treasuries to be a low-risk safe haven, regulators were alarmed when yields whipsawed back-and-forth with no apparent cause over a 12-minute span on Oct. 15, 2014. The fluctuations were so severe that yields had moved that much only three previous times since 1998. The SEC, Federal Reserve and other agencies have been scrutinizing trading ever since with a focus on a surge in electronic trading and whether rules approved after the 2008 financial crisis have prompted banks to pull back from the market.

‘Potential Risks’

“We have heard the concerns regarding potential risks of increased transparency, and believe that design is key,” Antonio Weiss, a Treasury Department counselor, said at the conference in New York.

The department aims to develop a plan for comprehensive collection of trading data for cash Treasuries by year-end. “Properly implemented, greater transparency in the Treasury market can offer substantial benefits, while protecting market functioning and liquidity,” he said.

White said she applauded the SEC’s decision last week to require that brokers report Treasury trading data by the end of the day on which the transactions occur. Meanwhile, the Federal Reserve also said last week that it would enter into negotiations with the Financial Industry Regulatory Authority to serve as its collection agent for bank data on trades.

White made her comments at an event the New York Fed has held for the past two years to discuss the market structure for Treasuries.

High-Frequency Trading

At the same event a year ago, she called on regulators to “seriously reevaluate” oversight of high-frequency trading firms. The buying and selling of Treasuries had increasingly taken on characteristics of the stock market, in which firms use computers to trade securities at super-fast speeds, she said at the time.

Making the Treasuries market more like equities “gives me some trepidation,” Alain Chaboud, principal economist of the Board of Governors of the Federal Reserve System, said during a panel discussion at the conference. “It’s a complex, messy market and works for some miraculous reason.”

White also expressed concern that principal trading firms are acting as dealers without the required regulation, such as scrutiny of books and records, that serves as a safeguard for investors and markets.

The SEC is looking closely at such principal trading firms that are engaged in dealer activity to see whether they should qualify for registration requirements, she said.

“A firm engaged in the business of buying and selling securities for its own account should be registered as a dealer, whatever type of securities it deals in,” White said.

— With assistance by Brian Chappatta

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