Similarly, the Desk’s foreign reserve management counterparties facilitate operations that are investments of the Fed’s and also the Treasury’s foreign currency reserves. Two other considerations underlie the counterparty framework and support the effective execution of open market operations and primary issuance of Treasury securities. First, the Desk has long recognized the importance of transacting with established, regulated market participants that are capable of settling trades and financing long and short positions reliably  1  I would like to thank Stephen Douglass, Frank Keane, and Susan McLaughlin for their excellent assistance in the preparation of these remarks and colleagues in the Federal Reserve System for numerous insightful comments and suggestions. 2  Counterparties also facilitate the Desk’s provision of services to foreign central banks, governments and international official institutions. Additional detail on these services can be found on this website. BIS central bankers’ speeches  1  and on a consistent basis in a range of market conditions. Our counterparty framework must be of an appropriate size to provide adequate execution capacity and competitive pricing. Second, the execution of domestic open market operations and primary issuance of Treasuries is facilitated by a liquid, smoothly functioning secondary market for Treasury securities. The Federal Reserve’s abiding interest in promoting the integrity and efficiency of the secondary market has motivated our recent efforts to join other agencies in analyzing the events of October 15, 2014, and to understand the implications of the evolution of Treasury market structure and the increasing incidence of electronic and automated trading.

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.