Gensler calls for enhanced US bond market transparency

Gary Gensler, chair of the US Securities and Exchange Commission, has called for enhanced transparency in US fixed income markets, to improve market efficiency and resilience.

Gensler said trade reporting delay times should be slashed as part of a series of reforms he believes reflect the changes in market structure brought about by electronification and the larger role of bond funds in holding fixed income assets.

“Academic research overwhelmingly finds that post-trade transparency improves competition and efficiency in the markets, [but] the information reported on these systems hasn’t kept pace with the changes in markets and technology,” said Gensler, in a pre-recorded interview for the CityWeek conference in London on April 26.

At present, unless they are subject to block trade exemptions, trades in US corporate bond markets must be reported through the Trade Reporting and Compliance Engine (Trace) system “as soon as practicable”, and no later than 15 minutes after execution.

“That’s a lifetime in markets,” Gensler said. “What if we could maybe push the outer bound, and shorten it to one minute?” 

Gensler also mooted the idea of public dissemination of data on individual US Treasuries trades. At the moment, these are reported only by dealers, and only to the regulators. In March 2020, the Financial Industry Regulatory Authority started publishing weekly aggregated volume data for dealer-to-dealer and dealer-to-client trades in Treasuries.

In a November 2021 report on the disruption in Treasuries markets that occurred at the start of the Covid pandemic in March 2020, an inter-agency working group suggested broadening the publication of Treasuries trade data as part of the process of improving market resilience.

The report stated: “Given the positive feedback received on the release of this data, and the lack of negative market feedback, it is consistent with prior principles to explore increasing transparency further.”

Academic research overwhelmingly finds that post-trade transparency improves competition and efficiency in the markets

Gary Gensler, SEC

Gensler also mentioned the US Federal Reserve’s introduction in October 2021 of a rule requiring depository institutions to begin reporting Treasuries and government agency bond trades to Trace from September 2022.

“Once the major firms are reporting in—the banks and the principal trading firms that we oversee—I think it could make sense to disseminate this information to the public, and thus the Treasury markets would get similar benefits to those we’ve seen in corporate and other bonds over the past 20 years,” Gensler said. “Public dissemination of Treasury data would help enhance counterparty risk management and evaluation of trade execution, promote greater competition and possibly lower costs for taxpayers as well.”

He also suggested adding extra reporting fields, such as the trading protocol used and fees or spread to the underlying paid on each trade.

Finally, Gensler advocated widening the scope of Trace to include foreign sovereign bonds.

“The European Union debt crisis, or more recently Russia’s invasion of Ukraine, have shown the value that regulatory reporting and public dissemination of foreign sovereign bond pricing would offer,” he told the audience.

The other elements of the package of measures related to Treasury markets that Gensler’s team is already working on include new rules for money market funds, extending regulation to new types of electronic trading platforms that are still outside the aegis of the SEC, and the registration of large non-bank market-makers in Treasuries.

Gensler said the regulation of electronic Treasuries trading should also include provisions to ensure fair access for investors, and better pre-trade price transparency on those platforms.

“I have asked staff to consider how quotes and pre-trade price information might be more broadly accessible, such as by updating the various regulations of alternative trading systems,” Gensler said.