Regulators on Tuesday signaled some desire to raise the curtain on the $14 trillion market for US Treasury debt, suggesting investors and the public could soon take a look at a vast and potentially valuable pool of Wall Street trading data.
A top US Treasury official said public dissemination of the so-called TRACE data “is now actively being considered” and that the department understands the potential value of publishing it. An influential Federal Reserve official said increasing data transparency was a “priority” because it makes for smoother and more stable markets.
The comments could suggest regulators are leaning toward releasing the information they have collected from broker-dealers since the summer on trading, patterns and flows. That, in turn, could harm banks’ secrecy, and help electronic trading firms and hedge funds hungry for an information edge in the world’s deepest financial market.
Craig Phillips, counselor to Treasury Secretary Steven Mnuchin, told a conference of investors and regulators that views are “mixed” on publishing the data and he noted some firms have argued it would hurt liquidity, or the availability of buyers and sellers, especially in less frequently traded bonds.
“Nonetheless, we understand the importance of transparency and the potential value of making certain data broadly available for public use,” he said at the New York Fed.
Mnuchin himself said he expects an “involved, data-driven process” of seeking advice from market participants before regulators make a final decision. His predecessor, Jack Lew, supported disclosing the data.
The so-called flash rally of 2014, in which prices swung wildly and buyers and sellers disappeared, prompted regulators to hold annual conferences and conduct research to address vulnerabilities in the increasingly electronic Treasury markets where two-thirds of trading is driven by computer algorithms.
While market volatility has dropped to record lows this year, the collection of data provides a clearer picture of who does what behind the reams of price-changes. That amounts to extremely valuable market intelligence for super-fast electronic traders, though dealers, who still dominate the market, say releasing the data even with a lag would hurt their business.
It is unclear when regulators will make a final decision.
“A continuing priority will be increasing data transparency to all market participants and to the public in a manner that supports, and does not harm, market liquidity and integrity,” New York Fed President William Dudley told the conference hosted by his bank and the Treasury.
Dudley, who is set to step down from the US central bank in mid-2018, stressed the need to adapt and argued that public disclosure should keep the Treasury market apace with more electronic and transparent markets like that of futures. Transparency will promote a “level playing field” and protect participants from abrupt price disruptions, he said.
Phillips revealed some slides based on the TRACE data that showed total daily trading volume was more than $500 billion and that, while other firms have grown, dealer-dominated activity represents about half of the total market.
Conference attendees said the tide seemed to be shifting toward more disclosure.
“Show me a market in which more transparency resulted in a debacle,” said Adam Nunes, head of business development at Hudson River Trading, a New York-based quantitative trading firm.