NEW YORK (Reuters) - Possible reform of the U.S. Treasuries market could take a page from the regulatory overhaul on Wall Street, a top U.S. regulator said on Tuesday, but she warned against imposing the same changes as the stock market on to the bond market.
“The SEC’s regulatory response may contain important insights for the Treasury market,” Securities Exchange Commission Chair Mary Jo White said in a prepared speech at a conference on Treasury market structure at the New York Federal Reserve.
White said there are similarities between the wild market swing on Wall Street on May 6, 2010 and what the near $13 trillion Treasuries sector experienced a little more than a year ago.
The growth in algorithmic trading has changed the landscape of the Treasuries market, an issue the SEC was looking into for the stock market before the May 2010 “flash” crash, she said,
Since the equity “flash” crash, SEC has implemented measures including circuit-breakers and anti-disruptive rules during episodes of extreme price swings in the stock market.
“A regulatory response needs to be carefully tailored to apply to active proprietary traders in short time periods when liquidity is most vulnerable and the risk of price disruption caused by aggressive short-term trading strategies is highest,” White said of the SEC rule aimed to curb “aggressive” and “destabilizing” stock strategies.
Regulators considering possible reform of the Treasuries market might want to explore tighter oversight on algorithmic trading and firms that engage in this strategy, which can move billions of dollars in trades across markets within fractions of a second. They might also consider rules on more transparency for non-exchange trading systems, White said.
However, White cautioned against imposing the ever-evolving rule book on stock market regulations on the Treasuries markets since they are fundamentally different securities.
“We cannot therefore simply import a program of equity market regulation into the Treasury markets. Rather, equity market experience should be put to work to help take stock of Treasury market structure and regulation,” she said.
Reporting by Richard Leong and Jonathan Spicer; Editing by Chizu Nomiyama