SEC Commissioner Aguilar Outlines Need to Revisit Regulatory Framework of U.S. Treasury Securities Market

In a public statement, SEC Commissioner Luis A. Aguilar discussed the report issued by the Interagency Working Group for Treasury Market Surveillance concerning the “flash crash” that occurred in the U.S. Treasury market in October 2014. Commissioner Aguilar stated that the market for U.S. Treasury securities (“Treasuries”) has undergone substantial changes in recent years, in part because of computerized trading and regulatory changes made by Dodd-Frank. In light of those changes, the Commissioner called on the SEC to lead a comprehensive review of the Treasury market.

The key proposals that Commissioner Aguilar urged regulators to consider included the following:

  • Revise Regulation ATS to make it applicable to alternative trading systems that trade U.S. Treasury securities exclusively
  • Revise Regulation Systems Compliance and Integrity to make it applicable to trading platforms that handle Treasuries
  • Develop a reporting mechanism that will give regulators the ability to monitor the Treasury market
  • Work with electronic trading platforms to develop appropriate safeguards for the Treasury cash market
  • Enhance the oversight of participants in the Treasury market
  • Enhance pre-trade price transparency in the Treasury market

According to the Commissioner, the SEC should “lead the way by reviewing its own rules and regulations with an eye toward enhancing oversight of the Treasury market.”

Lofchie Comment: The Commissioner seems to believe that the solution to any emerging market issue is yet more active regulation of the market. It is hardly obvious that that is the best approach. It seems just as likely that the market is responding rationally by pulling resources from business activities that are unprofitable because they are excessively regulated. It is difficult to see how the regulatory additions suggested by the Commissioner would address volatility in the market.

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