Statement Regarding Progress on the Review of the U.S. Treasury Market Structure since the July 2015 Joint Staff Report

The U.S. Department of the Treasury, the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, the U.S. Securities and Exchange Commission, and the U.S. Commodity Futures Trading Commission (Joint Member Agencies) today issued this statement to highlight significant actions taken since the issuance last July of their Joint Staff Report on the U.S. Treasury market, including the recently signed memorandum of understanding to share information on U.S. Treasury cash and related derivative markets among the agencies and their plans to host a second conference on October 24 to continue progress on these efforts.

The Joint Staff Report concerning the U.S. Treasury Market on October 15, 2014 was released one year ago and analyzed the significant volatility in the U.S. Treasury market experienced on October 15, 2014.  Using non-public data from the U.S. Treasury cash and futures markets, the Joint Staff Report provided detailed analysis of the market conditions and record trading volumes that day, including an unusually rapid round trip in prices and deterioration in liquidity during a narrow window.  In addition to describing a number of developments that help explain the conditions that likely contributed to the volatility, the Joint Staff Report offered several next steps to further enhance the public and private sectors’ understanding of changes to the structure of the U.S. Treasury market and their implications.

The Joint Member Agencies have taken both joint and individual actions in the past year to promote understanding, transparency, risk management, and inter-agency coordination with respect to the U.S. Treasury market, including a number of steps that are consistent with the recommendations of the Joint Staff Report.  Highlights include:

• Treasury published a request for information on the evolution of the U.S. Treasury market structure, as part of a comprehensive official sector review of the U.S. Treasury market;
• Treasury, CFTC, SEC, and the Federal Reserve Board signed a memorandum of understanding that permits sharing of information on U.S. Treasury cash and related derivative markets among the agencies, which will facilitate the analysis of major market events;
• SEC published for comment on July 19, 2016 a proposed rule from the Financial Industry Regulatory Authority (FINRA) that would require its member brokers and dealers to report Treasury cash market transactions to a centralized repository;
• SEC published proposed amendments that would enhance transparency and oversight of alternative trading systems (ATSs) and solicited public comment on whether such rules should be applied to systems that only trade Treasury securities; and
• CFTC published a proposed rule for public comment on specific aspects of automated trading in futures markets, including Treasury futures, which covers pre-trade risk controls and requirements (registration with CFTC, development, testing and monitoring standards) for market participants using algorithmic trading systems on U.S. futures exchanges.

In the coming months, staff of the Joint Member Agencies will continue to make progress on the next steps identified in the Joint Staff Report.

• The Joint Member Agencies will host a second conference at the Federal Reserve Bank of New York on October 24 to further the discussion on the evolution of the U.S. Treasury market and related policy initiatives.
• Staff of the Joint Member Agencies will continue to assess effective means to ensure that the collection of data regarding Treasury cash securities market transactions is comprehensive and includes information from institutions that are not FINRA members.
• Staff of the Joint Member Agencies will continue to work together for effective and coordinated monitoring of market activity and liquidity, including consideration of the potential for ongoing sharing and collaborative analysis of transaction data from Treasury cash and related derivatives markets.
• Staff of the Joint Member Agencies will continue to study and engage market participants to develop and communicate a set of principles on the appropriate scope of Treasury market data available to the public.
• Staff of the Joint Member Agencies will continue to review and evaluate potential changes to the regulatory framework for government securities market and its participants.

“Strong Treasury markets demand close regulatory coordination that addresses the full range of participants and trading platforms active today,” said SEC Chair Mary Jo White. “Transparency is vital to maintaining robust markets, and the Commission is actively evaluating measures to enhance regulation and reporting for alternative trading systems and other market participants in the cash Treasury market.”

“The volatility in the U.S. Treasury market on October 15, 2014 led to an intensive interagency review that has helped us better understand the current nature of this market,” said CFTC Chairman Timothy Massad. “Among other findings, it made clear the need to collect better data on the cash market and to examine the implications of the dramatic increase in automated trading in this, as with all financial markets. I look forward to continuing our progress on these and other important issues.”

“The progress highlighted today on the first comprehensive review of the U.S. Treasury market since 1998 is ‎the result of closely coordinated interagency work,” said Antonio Weiss, Counselor to Treasury Secretary Jacob J. Lew. “We remain committed to that approach, and I look forward to sharing our vision of the road ahead at the conference in October.”

“Treasury markets are important to all of us and are undergoing significant changes,” said Federal Reserve Governor Jerome Powell. “The Joint Staff Report and progress made over the last year have helped to shed light on the evolving nature of these markets.  The members of the Inter-Agency Working Group will need to continue to work with market participants to ensure the resilience and smooth functioning of all of the markets involving Treasury securities.”

“Over the past year, the members of the Inter-Agency Working Group and the private sector have made great progress on implementing the next steps identified in the Joint Staff Report,” said Federal Reserve President Bill Dudley.  “A well-functioning and resilient Treasury market is critical to the financial system, and serves policymakers and market participants alike.  We look forward to ongoing engagement by all stakeholders to continue to safeguard the integrity and functioning of the Treasury market as it evolves.”

Media Contacts:

Treasury:                                  Rob Runyan                            (202) 622-2960

Federal Reserve Board:           Darren Gersh                          (202) 452-2955

FRBNY:                                    Suzanne Elio                           (212) 720-6449

SEC:                                         Office of Public Affairs             (202) 551-4120

CFTC:                                       Steve Adamske                       (202) 418-5675