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2015 Roundtable on Treasury Markets and Debt Management

Remarks by Counselor Antonio Weiss

November 20, 2015

As prepared for delivery

Good morning. Today’s portion of the conference is dedicated to the evolving structure of 

Treasury markets, a theme we’ve focused on intensively over the past year. More 

specifically, it is a continuation of our work following the July release of the joint staff 

report on volatility in the Treasury market on October 15, 2014. 

We are in the midst of the first comprehensive review of the Treasury market since 1998—

years before algorithmic trading began in Treasuries. This is a priority for Treasury, and 

we will continue our close collaboration with the Federal Reserve Board, the Federal 

Reserve Bank of New York, the SEC and the CFTC. The supervisory and regulatory 

landscape of the Treasury market requires extensive coordination, and I’d like to recognize 

the high-quality work performed by the teams at all five agencies.

This morning, I will briefly review the key lessons of the Joint Staff Report, preview some 

themes we plan to cover in an upcoming Request for Information (“RFI”), and highlight our 

efforts to advance this process—in particular, our plans to obtain more data about 

Treasury market activity on a regular and timely basis. 

Lessons of the Joint Staff Report 

The most important lessons of October 15th are not to be found in the details of what 

happened that morning, in what set that day apart. Rather, it is what that day had in 

common with every other day in the Treasury market that is most profound. 

The October 15th Report shines a light on several developments that have fundamentally 

changed the Treasury market over the past 10 to 15 years. Our current review, building on 

the Report, is focused on bringing industry practices and regulatory standards fully up to 

speed with the new realities of our market. In the coming weeks, we will seek public 

comment on several of these developments, their implications for Treasury market 

functioning, and how both the private and public sectors might respond.

We are mindful in undertaking this review that the Treasury market is a complex 

ecosystem that serves us extraordinarily well. Indeed, the Treasury market remains the 

deepest and most liquid securities market in the world, and is the safe haven for investors 

in turbulent times. The Treasury market is the global benchmark for a well-functioning 

and trusted financial system, and our overarching aim must be to keep it that way for 

decades to come. 

But it is equally important that we not take this status, nor the benefits it confers on U.S. 

taxpayers, for granted. As the Treasury market evolves, both the public and private sectors
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must evolve with it. We need to further develop our thinking about risk management, 

about necessary monitoring and surveillance capabilities, and about the right level of 

transparency. 

The most fundamental change that has occurred in Treasury markets is increased 

electronification across all types of market participants. Newer players deploying 

automated, high-speed trading strategies, are becoming increasingly prevalent, especially 

in the “on-the-run” securities. 

“High-speed” is now, quite simply, the speed of markets across most benchmark securities. 

This is true in equities, futures, and foreign exchange; it is true domestically and 

internationally; and it is true across many traditional firms as well as new entrants. 

Key Themes and Questions 

This new reality brings new risks across several dimensions, as I have discussed 

previously. The first is operational risk, which is heightened in markets where decisionmaking is automated and message traffic is growing exponentially. The pressure on the 

plumbing, and the risk of an accident, can only increase as the race for speed intensifies. 

Market participants themselves are beginning to question whether the competition to 

shave one more millisecond helps or hurts market functioning. They have begun to 

respond with latency floors and other innovations that reduce the advantage of pure speed. 

Risk is compounded by timing differences. Trading occurs in fractions of seconds, while 

margin is calculated and collected only once or twice a day, and settlement occurs over 

multiple days.

A second, and related, set of risks involves oversight and risk management. Players who 

account for major portions of trading activity in the Treasury market on any given day may 

not hold significant capital, and are not always subject to direct oversight of their 

infrastructure and risk management systems. 

SEC Chair Mary Jo White recently highlighted steps the SEC has taken to improve 

operational integrity in equity markets, and asked whether those or similar steps might be 

adopted in the Treasury market. And just this week the Commission itself posed a series of 

questions about potential changes to the regulatory regime for Treasury market trading 

venues, as identified in the October 15th Report. CFTC Chairman Tim Massad also indicated 

that the CFTC will be proposing risk controls for automated trading systems, to reduce 

risks from malfunctioning or inadequately-tested trading algorithms.

A third category of risk involves market conduct. Recent allegations of spoofing in the 

futures market highlight the ways in which high-frequency trading strategies can 

potentially be used to manipulate market outcomes. And the October 15th Report 

highlighted the prevalence of self-trading, which accounted for 15 percent of transactions 

during the run-up in price in the first half of the “event window.” In both cases, the 

question of “intent” is important in distinguishing legitimate from potentially illegal 
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activity. When is an order a bona fide order, such that it represents genuine intent to 

transact? Are there identifiable benefits that accrue to the market from self-trading that 

off-set the appearance of impropriety? If so, how can authorities more clearly distinguish 

between “good” and “bad” self-trading? Are there structural changes to trading rules or 

practices that could help clarify these issues? These are questions we will continue to ask 

market participants and other stakeholders.

The fourth category is market resiliency. The October 15th Report asks whether the new 

market structure, which appears more liquid on average, may nonetheless be vulnerable to 

rare but severe bouts of illiquidity. If the nature of liquidity provision in the Treasury 

market is changing, how are market participants responding? How should policy makers 

think about these changes and the tradeoffs involved? How does liquidity provision differ 

in Treasury markets from futures to on-the-runs to off-the-runs? 

We will discuss several of these questions on the forthcoming panel. But first I want to 

highlight a theme that underpins a proper assessment of any risk. That is, the need for 

more timely and comprehensive access to data. And we are moving forward with plans to 

collect the necessary data, and will engage in a dialogue on the appropriate level of public 

transparency.

Prioritizing Data and Transparency

There are two basic questions. The first is whether the official sector should have access to 

more comprehensive data in something closer to real time. Here, the answer is 

undoubtedly yes. There is broad consensus on the basic notion that the official sector 

needs better access to trading data, particularly in the Treasury cash market.

We are developing a comprehensive plan to achieve improved regulatory visibility into 

Treasury market trading. We will use available existing authorities to request and obtain 

much of the information we would require on a regular and ongoing basis, and will seek 

additional authorities if necessary. We will be deliberate, and engage extensively with all 

stakeholders as we proceed, but we are operating with a sense of urgency, on the premise 

that this simply must get done.

Beyond the initial hurdle of collecting the right data, analyzing these data routinely, 

especially across venues and markets, will likely require additional capabilities and 

infrastructure. As we build this infrastructure, we should contemplate not just our current

challenges, but also the future needs of both regulators and a growing range of market 

participants. These are topics on which public input will be needed, and we will seek 

advice initially through the RFI. 

As the October 15th Report demonstrated, analysis of the Treasury market necessarily 

involves sharing data among regulators. We must facilitate effective data sharing while 

safeguarding nonpublic information. To that end, our respective agencies are working 

toward a standing information sharing agreement—one of the specific next steps identified 

in the Report—and other tools as needed.
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The second question with respect to data is perhaps more complicated: whether and how 

to provide greater transparency to market participants and the public at large about 

Treasury cash market trading activity.

On one level, this question appears straightforward: Why should Treasury securities, which 

are standardized and liquid, trade in a less transparent environment than corporate bonds 

or mortgage-backed securities, or even interest rate swaps.

Greater transparency can encourage participation by new entrants, who may otherwise be 

reluctant to engage in a market where they have less information than their counterparties. 

Greater transparency may also be desirable with respect to the practices governing trading 

and access at the various trading venues. Visibility into order types, access rules, and 

rulebooks may encourage greater competition and a more level playing field for market 

participants.

However, the Treasury cash market is not uniform. More recently-issued “on the run” 

securities trade largely on electronic platforms that operate much like public stock 

exchanges. Aged or “off the run” securities generally still rely on primary dealers to 

intermediate transactions. Full transparency may inhibit the willingness to engage in large 

so-called “block” trades by large investors and intermediaries. This may be particularly 

true in the less liquid parts of the Treasury market, where concerns about moving prices or 

revealing positions are stronger.

In the RFI, we plan to seek comment on whether market participants should have access to 

more detailed information about trading activity in the Treasury cash market and, if so, on 

what terms. 

In a fragmented market with varying levels of participation across different venues, and 

varying levels of liquidity across different securities, we will need to balance the needs of 

many different types of market participants to achieve the desired outcome: the most 

robust, diverse, and liquid market possible. The RFI will provide an important opportunity 

to hear diverse opinions on the issues, and we will encourage participation by all 

stakeholders. 

Conclusion

The analysis in the Joint Staff Report was critical in establishing a baseline of clear facts and 

hard data, not only about the events of October 15th but about the evolution of the Treasury 

market overall. We are now building on the Report by advancing the work identified in the 

next steps. We will seek input from stakeholders at every step, and encourage you and 

your organizations to participate in this dialogue. Where consensus emerges, or necessity 

demands, we will act.