Immediately after the crisis, the Federal Reserve was active in pushing reform of the tri-party repo market, which had been a locus of stress in 2008. More recently, Treasury repo markets have undergone further changes, including market adaptations to post-financial crisis regulations, and the introduction of multiple programs expanding access to central clearing to a wider range of market participants. These markets also have been affected by efforts to set heightened expectations for CCPs with regard to liquidity risk management, margins, and governance and recovery planning. This is consistent with the Treasury Department’s recommendation that regulators ensure appropriate risk management at CCPs and other financial market infrastructures. For example, earlier this month, the SEC approved the Capped Contingency Liquidity Facility—a liquidity risk management tool for the DTCC’s Fixed Income Clearing Corporation (FICC). This tool helps to ensure that FICC will have sufficient liquidity to cover the default of a Government Securities Division member to which FICC has the largest exposure. This development reflects another positive step toward a safer centrally cleared repo market, and aligns well with broader official sector efforts to maintain a well-functioning and robust Treasury repo market. Finally, the Joint Staff Report identified the importance of strong interagency monitoring of the Treasury market, in close collaboration with the public. Judging by this gathering, the commitment to this task is strong—which is good because many questions remain.
The Joint Staff Report on the Treasury flash event, the Treasury Department’s subsequent request for information, and the work that has followed identified a number of changes that have reshaped the Treasury market over the last decade. These include the increased electronification of trading, the changing nature of intermediation and liquidity, and the entry of new market participants. In light of these changes, the Joint Staff Report highlighted four important priority areas for additional work. In taking these efforts forward, we have benefited from ongoing engagement with market participants and other members of the public. The first priority is gatherings like this one, where both private and official sector participants come together to study and share views on what the market’s evolution means for its structure and liquidity. Understanding how the Treasury market is evolving can enable us to be good stewards of its trajectory. A second priority is improving the availability of data on activities in the cash market. After the historic volatility that occurred on October 15, 2014, the official sector had limited access to transaction data. This resulted in a months-long lag in the process to gather and analyze data from the event. The introduction this year of transaction data reporting by broker-dealers to the official sector is thus a critical step forward. While closing this data gap for the official sector is an important milestone, work remains to ensure that the scope of collection is sufficiently complete and dynamic to maintain coverage of relevant firms, as intermediaries and liquidity providers evolve.