The US Treasury is planning to hold closed-door meetings with high-speed traders this month to discuss options for increasing transparency in a government bond market long dominated by large banks and brokers.
The talks are intended to gather opinions on whether to make trade records in the $14tn Treasury market available to the public, a change that could shift power from the banks to technology-savvy market makers that thrive on data-driven algorithms.
Public reporting of trade data are commonplace in markets for US equities and corporate bonds, enabling investors to see the price and size of market transactions on their computer screens. But there is no similar requirement for Treasuries.
Since July, some of Wall Street’s biggest companies have been required to report trades to regulators but the debate has shifted to whether this data should be made public.
Treasury officials intend to meet New York-based high-frequency traders this week before next week heading to Chicago, historic home of the proprietary trading community, where they will probably find support for making data public, according to people familiar with the meetings.
“We are supportive of any initiative that increases transparency,” said Kirsten Wegner, chief executive of Modern Markets Initiative, an HFT industry group. “If there is broader dissemination of trade data then that is one way to add transparency to the market.”
HFTs including Virtu Financial, GTS and XR Trading are likely to be on the list of firms invited to the Treasury meetings, according to people familiar with the matter.
US “primary dealers” — the 23 banks and brokers that bid on a pro-rata share at each Treasury auction to ensure the debt is sold — have pushed back against the move in meetings with US officials, according to people familiar with the discussions.
The primary dealers argue that making trade data public could dissuade investors from buying debt for fear the market would move against them once their positions are known.
“We’re very supportive of disseminating to our regulators,” said Kevin Walter, a treasury trader at Barclays. “When it comes to disseminating to the public, however, there is cost associated in regards to liquidity.”
The mood of the primary dealers takes on greater importance because the Treasury is increasing debt issuance to cope with a growing deficit. At recent debt sales, primary dealers have been left holding a higher than average amount of paper as other investors back away from the market.
“We are having thoughtful discussions with a wide range of market participants to gather viewpoints and feedback,” the Treasury said. “We are evaluating the comments we receive and are committed to ensuring that dissemination of the data does no harm to the market and enhances the liquidity in the Treasury market.”
A possible compromise would be to follow rules for the corporate bond market, in which public dissemination of trade data are delayed and trades above a certain size are reported as simply being above the threshold.
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