The Futures Industry Association Principal Traders Group (“FIA PTG”) argued that the extraordinary volatility in the U.S. Treasuries market on October 15, 2014 “called attention to the market’s changing dynamics” and “highlighted the need to consider changes to address the market’s unusual lack of transparency.” Tracing the regulatory response after that spike in volatility, FIA PTG reviewed subsequent actions that addressed market transparency including a joint staff report in 2015 by multiple regulators, the U.S. Treasury Department’s request for comments on the Treasuries market structure and, importantly, FINRA’s recent proposal that would require two-sided reporting from Treasuries market participants.
FIA PTG argued that FINRA should reconsider its two-sided reporting proposal. According to FIA PTG, the “European Market Infrastructure Regulation requires dual reporting ostensibly to ensure accuracy and quality in data reporting,” but “research published by a dozen associations” found that “‘confirmation execution rates are generally at or above 90%, whereas pairing rates at trade repositories used in dual-sided reporting regimes are around 60%.'” The associations’ research also concluded that two-sided reporting increases the costs and complexity of the market and inflicts additional burdens on market participants. FIA PTG observed that “much of the data from the U.S. Treasury market may already exist at the platform, clearing firm/prime broker or relevant designated contract market, making two-sided reporting also redundant.”
FIA PTG concluded:
FIA PTG remains hopeful that regulators will consider not just the desired outcome of enhanced transparency, but also the efficiency and cost-effectiveness of the means of achieving transparency.
Lofchie Comment: Imposing reporting requirements just adds more cost on non-dealers. Regulators should not underestimate the operational difficulty for end users of having to develop procedures and systems in order to comply with new operational requirements. Any individual new requirement may seem trivial to the regulator who imposes it, but the number of regulators is very numerous, and the number of regulations even more so. The cost burdens of so many regulators, rules and requirements challenges small and medium firms to turn a profit and, thus, to survive. The result is an increasing likelihood that only big firms, that are able to spread regulatory costs over a substantial volume of transactions or clients, will remain.