The Treasury Market Practices Group (TMPG), a private sector group of market professionals sponsored by the New York Fed, has played an important role in these efforts. Building on analysis that started before October 15, 2014, the TMPG released earlier this year an updated set of best practice recommendations and a companion white paper discussing automated trading.3 As is typical of TMPG initiatives, the group’s work on automated trading was undertaken to support market liquidity amid these changes in the market ecosystem. Much work remains to calibrate an appropriate response to changes in market structure, and last month’s conference “The Evolving Structure of the U.S. Treasury Market” provided a valuable opportunity for the official and private sectors to engage in a healthy and open debate on a range of related topics.4 The conference, organized by the Treasury, the Federal Reserve Board, the New York Fed, the Securities and Exchange Commission, and the Commodity Futures Trading Commission, featured a review of the agencies’ July 2015 Joint Staff Report and highlighted a number of key issues, including the adequacy of the Treasury market data currently available to the public and to the official sector, the impact of the current regulatory environment on liquidity, and some potential operational risks posed by shifting market structure and trading behavior.5 The Treasury made clear at the conference that work in this area is ongoing when it disclosed plans for the agencies to issue in the near future a request for information on the next steps outlined in the Joint Staff Report.

2  BIS central bankers’ speeches  A robust counterparty framework, specifically one that provides reliable execution capacity of sufficient scale and is facilitated by a liquid and smoothly functioning secondary market for Treasury securities, aids the Desk in pursuing our objectives with respect to the implementation of monetary policy and the activities we undertake in support of the Treasury. But these benefits must be balanced against the cost of maintaining counterparty relationships. Staff time and resources are required to monitor and manage these relationships to ensure that we are getting good value not only in terms of trade execution, but also in terms of market monitoring, an important function that the Desk provides for the benefit of the Federal Reserve System and the Treasury. A large, diverse set of counterparties can contribute to competitive trade execution and richer sources of market intelligence, as well as the increased operational coverage and resiliency that support adaptation to changes in market structure or operating directives. But diversity also entails complexity and requires initial and ongoing investment in infrastructure to support a wider range of firm types. Evaluating and onboarding firms, setting up transactional systems and account arrangements, and monitoring and evaluating counterparty performance and risk all take time and resources that must be balanced against the potential benefits of a larger list.7 One final consideration that bears mention is the concept of an imprimatur that some market participants associate with status as a New York Fed counterparty.