Fed Working on Capturing Non-Finra Banks' Treasury Trade DataBy and
Fed’s Powell comments at TMPG conference in New York
Market participants have raised issue of incomplete data
Federal Reserve Governor Jerome Powell said the central bank wants to capture more data on trading in the $14.1 trillion Treasuries market, after regulators began gathering statistics on a limited group of transactions this year.
The most senior Fed official on markets regulation stressed at a Treasury Market Practices Group conference Thursday that the central bank is working on collecting data on Treasuries dealings from more banks, following the Financial Industry Regulatory Authority’s move in July to start assembling results for its members only. Market-makers and high-speed trading firms say the efforts don’t go far enough because they exclude non-Finra members in data collection through the bond-price reporting system, known as Trace.
The push to gather trading statistics is part of regulators’ efforts since 2014 to have Treasuries dealings data at their fingertips -- information that’s existed for years in other markets like corporate bonds and equities. It’s part of an attempt to improve transparency following an episode of unusual volatility in October 2014.
“We should be concerned about creating a level playing field,” Powell said in prepared comments for the event at the New York Fed. “For that reason, the Board of Governors is continuing to negotiate with Finra for it to act as our agent in collecting similar data from banks. We do not want to create a regulatory arbitrage where the same activity done within a broker-dealer is treated differently than when it is done within a bank.”
Increasing transparency is a positive, but the largest banks active in the Treasury market are already Finra members, said Anthony Perrotta, chief executive officer of research firm Tabb Group LLC
“The real issue is whether the agencies are going to be able to collect data from principal trading firms,” some of which aren’t Finra members or connected to any, he said. “Because in the wholesale market, these firms represent 60 percent of the notional value of transactions. If they are left out, you are missing a big chunk of ability for oversight of the marketplace by regulators.”
The U.S. Securities and Exchange Commission, which oversees Finra, received comments from firms including Citadel and Virtu Financial Inc. last year that the regulators’ plans were lacking, for reasons including that they leave out non-Finra members. The mandate requires only brokers, banks and some automated trading firms -- those who are Finra members -- to report through Trace.
Ray Pellecchia, a Finra spokesman in New York, declined to comment.
Finra joins other regulators working on improving the Treasury market’s structure: the SEC, the Treasury Department, the Commodity Futures Trading Commission, the Fed’s Board of Governors and the New York Fed.
“More transparency is a good thing,” said Guy Haselmann, managing director at OpenDoor Trading LLC, a Treasuries trading platform. “A market should always operate on a level playing field and be as transparent as it possibly can. And the information you get out of a transparent market should be the same across all participants.”