Joint Staff Report on October 15

The Treasury, Federal Reserve, SEC, and CFTC issued a joint report on the US Treasury Market. The report draws on participant-level data from inter-dealer venues and the futures market, giving the public a unique look into the nature of trading in the Treasury market. Direct Match sent out a summary of some of the more interesting findings in the report today.

1. Proprietary Trading Firms (PTFs) comprised a majority of the depth in the order book during the 15-min window when prices spiked.

Banks largely stepped back from providing liquidity during the event. High-frequency traders (what the report calls PTFs) continued to make markets.

Analysis of participant-level data in the cash and futures markets did not reveal a clear, single cause of the price movement during the event window on October 15. However, the data did highlight a number of important characteristics of the event. They revealed that PTFs remained the dominant participant type during the event window: they produced high trading volumes during the event window, and continued to provide liquidity to the cash and futures order books, though at much reduced levels. Bank-dealers also increased their trading volumes, but to a much lesser extent, and provided less liquidity in the order books by widening their spreads and withdrawing for brief periods from the offer side of the book.

2. A large segment of the cash market lacks access to the ‘primary location’ for price discovery.

For example, cash Treasury market data do not include the large dealer-to-customer market, in which dealers transact — either through voice or electronic means — with their customers. Additionally, data for similarly liquid U.S. interest rate products, such as plain-vanilla interest rate swaps, are not incorporated into this report, nor is data on interest rate options. Nonetheless, the data do capture the most liquid interest rate products traded over a CLOB (namely, benchmark cash securities trading and interest rate futures), which arguably serve as the primary locations for price discovery in U.S. interest rates.

All-to-all futures markets allows all participant types to engage in price discovery.

4. Regulators are looking at TRACE-like reporting for Treasuries

The staffs of the Treasury, Board, FRBNY, CFTC, and SEC are committed to continuing to appropriately enhance the information made public about the U.S. Treasury market. The authors of the report:

- Plan to conduct an assessment of the sufficiency of publicly available information on Treasury cash securities market transaction pricing and pre- and post-trade trading activity, including a review of possible post-trade transaction reporting by government securities broker-dealers and banks.