Proposed regulatory reforms to the U.S. Treasury market are going too far, according to a survey of buy-side traders from Coalition Greenwich.
In mid-September, the U.S. Securities and Exchange Commission (SEC) proposed a series of major reforms to the Treasury market that would, among other things, increase central clearing, tighten registration requirements for dealers and trading venues, and adopt measures to enhance risk management by central counterparties (CCPs).
These proposals are getting largely negative reviews from institutional investors, Greenwich reported.
Most buy-side traders it surveyed across North America, Europe and Asia (85%) said they don’t think the Treasury market needs a major overhaul, it reported.
“Market participants are not against market reform, but the majority are convinced the current proposals have gone too far or miss the mark of the SEC’s stated intentions of improving U.S. Treasury transparency and liquidity,” said Kevin McPartland, head of research at Coalition Greenwich Market Structure & Technology, in a release.
In particular, traders are against mandating central clearing, Greenwich said.
However, there are reforms that traders do support, it also noted.
For instance, “requiring all U.S. Treasuries to be traded electronically — something never formally proposed by regulators — was surprisingly high on the list of improvements endorsed by study participants,” it said.
Additionally, it noted that nearly half of survey respondents said that banks should be encouraged to hold more U.S. Treasuries through lower capital charges on those holdings.
“Continuously working to improve the market structure for U.S. Treasury trading is prudent, but that process must include cost-benefit analyses to ensure the time spent yields the needed results,” McPartland added.