The U.S. Finally Has a Plan for Releasing Data on Treasuries Trading
The U.S. Finally Has a Plan for Releasing Data on Treasuries Trading
(Bloomberg) -- After years of reviewing a hotly debated issue, the U.S. government has decided to recommend publicly releasing data on Treasuries trading volume.
Treasury Secretary Steven Mnuchin’s debt managers on Monday detailed to an audience of Wall Street’s elite, central bankers and regulators the results of their years-long examination of transparency in the world’s biggest bond market.
Speaking at an event at the Federal Reserve Bank of New York, Deputy Treasury Secretary Justin Muzinich said the department was advising that the Financial Industry Regulatory Authority, which has been collecting transactions data since 2017, release weekly aggregate volume statistics.
The decision fell short of what some market participants, including high-frequency traders, were hoping for: the release of pricing data. But Treasury’s analysis indicates there’s already transparency on that, according to Muzinich.
“Based both on the feedback from market participants, and on the observation that Treasury securities already trade with very tight bid-offer spreads, price transparency largely exists in the Treasury market,” Muzinich said in his prepared remarks. “It should therefore not be the sole basis for releasing transaction data. However, while prices are transparent, our outreach confirmed that market volume data is not.”
The Treasury is working out the details with Finra, which owns the data as it’s been gathering it through its price-reporting system for bonds known as Trace. The department recommended the statistics become available to the public early next year. Treasury advised releasing weekly aggregate volume details, broken down by market segments (including between dealers and those by dealers directly with customers) on all government securities including the most actively traded as well as older issues, dubbed off-the-run.
In the U.S. stock market, the price, size and time of transactions are usually reported within a second. For corporate bonds, it’s 15 minutes or less. Reflecting the private-club feel that’s long dominated the business, there’s no comparable disclosure in Treasuries, which set rates for trillions of dollars worth of assets, like mortgages.
“It is only a small iteration from where we are today,” said Kevin McPartland, head of market structure and technology research at Greenwich Associates. “The additional transparency I think will be welcomed by most, but many market participants were left wanting more,” McPartland said in an interview from the sidelines of the New York Fed conference.
Along with metrics that signal Treasuries pricing isn’t opaque -- unlike corporate bonds, which were before Trace reporting began there -- the sheer volume of transactions and the need to further improve data collection to ensure accuracy were also behind the decision to not release price data, according to a separate Treasury official, who requested anonymity to discuss the decision.
The debt-management team hasn’t closed the door on releasing trade price details to the public at a later date and is continuing efforts with Finra to improve the data, said the official, who added the Treasury wasn’t making any commitment to do so.
The decision was guided by a principle that Mnuchin laid out in 2017, which was for the department’s actions to “do no harm,” Muzinich said in his speech. “Since the Secretary’s remarks, Treasury has sought to better understand the potential benefits of releasing transaction data to the public. We therefore gathered views from market participants through an extensive outreach effort over the course of 2018.”
This decision will affect a broad swath of market participants, from banks to high-frequency traders. A raucous public debate stretching back to 2016, if not earlier, has pitted bond dealers against high-speed trading firms over what data should be public. Wall Street banks argue greater transparency will make it harder for them to trade. Automated market makers, which play an increasingly key role in modern trading, think more information will help them buy and sell more as well as reduce costs.
Citigroup Inc. and several other bond dealers have in the past stated opposition to broad dissemination of trade information to the public. They say it would make it tough for banks to assume large amounts of risk on behalf of their clients, and increase the potential for transactions in U.S. debt -- particularly older securities that changes hands less frequently -- to move the market.
Data Advocates
High-speed trading firms such as KCG Holdings Inc. -- acquired by Virtu Financial Inc. in 2017 -- advocated for public release, seeing it as enhancing trading efficiency and opening the Treasury market to more participants. Billionaire Ken Griffin’s hedge fund, Citadel LLC, has said more data may actually give investors a bargaining chip to win better execution from their trading partners.
The annual gathering at the New York Fed has been part of a push by authorities to shed light on the workings of this business following an extreme bout of volatility in October 2014. The episode involved a 12-minute crash and rebound in yields with no apparent trigger. It prompted the first government review of the market since 1998 and, in 2017, Finra began collecting market data via Trace. For now, only regulators, including Treasury, can view the data.
The Treasury market has grown to more than $16 trillion from about $7 trillion a decade ago. Average daily volume has ranged between roughly $500 billion and $1 trillion over the last 12 months, Muzinich said in his presentation.
The release of weekly volume statistics will provide market participants with a better understanding of how trading flows change based on seasonal factors or significant events, he said. In addition, it will ensure a “more level playing field,” encourage more off-the-run trading, while also having “no negative impact on market behavior or liquidity,” he said.
After two years of work on the matter under former Treasury Secretary Jack Lew, Mnuchin’s team took over.
“Though we have not again had a flash rally of the magnitude of Oct. 15, 2014, the new transaction data allows us to be better prepared to study one, should one occur, and to evaluate any potential response,” Muzinich said in his remarks.
“The data confirms the robustness and resiliency of the Treasury market, which maintains exceptional liquidity, diverse participation and remarkably efficient price discovery,” he said. “There is plenty of opportunity for further inquiry, and we are glad that the private sector will have the opportunity to study the new data going forward.”
To contact the reporter on this story: Liz Capo McCormick in New York at emccormick7@bloomberg.net
To contact the editors responsible for this story: Benjamin Purvis at bpurvis@bloomberg.net, Mark Tannenbaum, Nick Baker
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