How can the Joint Member Staffs and private stakeholders best collaborate to ensure stability in the Treasury market as the market structure evolves and new technologies are applied? How should practices and culture evolve accordingly? Will new technology and automation in the marketplace introduce unexpected challenges or risks to Treasury market participants? Are there opportunities to improve market transparency in a way that sheds light on risk issues that emerge as the market continues to evolve? Are the regulatory requirements imposed upon the Treasury market appropriate in the current environment? Has a competitive level playing field 2/3  BIS central bankers' speeches  been maintained given the evolving structure? And, are there any changes that could improve the functioning, efficiency and/or integrity of the Treasury market? As I highlighted before, answering such questions well could require greater transparency. It is important for officials and market participants to fully understand the range of market elements. These include the relative size of transaction volumes by various players, the breadth and resiliency of platforms used to facilitate risk transfer, and the robustness of market infrastructure under contingent circumstances. More broadly, interagency efforts and collaboration with the public to shed light on the evolving structure and its risks are critical to protecting Treasury market function and supporting investor confidence. Because we benefit from the Treasury market being the deepest and most liquid market for government securities, complacency should not be an option.
A major infrastructure issue for the Treasury market has been the clearing and settlement practices of the cash market. This can be opaque, with a majority of trades cleared away from central counterparties (CCPs). While central clearing is more uniformly used in other segments of the Treasury market—such as futures—many market participants elect to clear and settle cash Treasury transactions in a bilateral fashion. This process includes many market participants: trading venues, clearing agents, and clearing banks. No single participant has a view of the entire clearing and settlement system. The Treasury Market Practices Group (TMPG), a New York Fed-sponsored group of market professionals working to support the integrity and efficiency of the Treasury market, has concentrated its recent efforts on this topic. Preliminary findings include an increasing volume of linked trades that clear centrally on one side and bilaterally on the other. This work has also uncovered information asymmetries in clearance and settlement risk management, which potentially could lead to a mispricing of these risks. Moreover, increased understanding about the depth, breadth, and durability of credit arrangements that support clearance and settlement seems desirable. This would improve market integrity through greater understanding of risk throughout the clearing and settlement process and how it is affected by different conditions. Since the financial crisis, there has been an effort to strengthen the resiliency of repo market infrastructure, which is another important element of Treasury market plumbing.