The SIFMA Podcast: Additional Transparency for Secondary Market Transactions of Treasury Securities

A Conversation with Rob Toomey and Bradley Ziff

In this episode of The SIFMA Podcast, SIFMA’s Rob Toomey sits down with Bradley Ziff from Sia Partners to discuss a recent study on the impact of additional public transparency for secondary market transactions in the treasury market. They uncover what kind of impact this would have on market participants and on the market generally.


Rob Toomey: Hi, thanks for joining us for this episode in SIFMA’s podcast series. I’m Rob Toomey, Managing Director here at SIFMA and Head of our capital markets practice.

I’m joined today by Brad Ziff he’s an operating partner at Sia Partners and we’ll be discussing a recent study that Brad and the team at Sia Partners had done for us on the impact of additional public transparency for secondary market transactions in the treasury market and what and really the question was what kind of impact this would have on market part depends and, on the market, generally so, Brad thanks for joining us today very much appreciate it.

Bradley Ziff: Thank you Rob, for the opportunity to be with you.

Rob Toomey: Sure, and just a little background on what we were doing with Sia Partners, SIFMA had asked Sia Partners, a global management consulting firm, to conduct a survey, and this was in response to the U.S. Department of Treasuries request for information on transparency for U.S. treasury market products and the treasury put this out over the course of the summer and the Sia study, that Brad was leading, really supplements SIFMA’s response to treasury request for information. SIFMA filed a response in August 2022 at the end of august, and this letter was meant to be a supplement to that response. So Brad, I think it would be best now if you could kind of walk us through how the study was conducted, who the participants were and where the targets were.

Bradley Ziff: Sure, thanks Rob. Our study was conducted using a methodology of one to one interviews with a variety of investors and a select group of primary dealers. I should note, we were quite successful in getting all of the major U.S. primary dealers involved in that effort, which gave us I think a real good richness in the response. There was no survey involved no box checking so all of this was done on individual interviews which lasted at least an hour with each of the participants. There were sixty firms in the project they were global in nature not just from the united states but also from Canada Europe the UK as well as from the Asia pacific region.

The investor group was also quite diverse and that was one of the things that both sea and SIFMA felt pretty strongly about, was to make sure that we didn’t have a substantial concentration of one area. So, we had a mixture of pension funds, insurance companies, larger asset managers some mid-size, traditional hedge funds or alternative investment vehicles, bank treasuries as well as a smattering of global government entities, which included a mixture or of sovereigns as well as central banks and others.

The study questions were drawn from the department of treasury RFI and we made it a point of making sure that every one of the participants appreciated that they were answering effectively official questions in that regard. We did some supplementation with topics which were based on regulatory reporting and operational issues, but that was not the main focus of the study. We really focused our attention and our time on drawing out the participants views on the RFI itself.

Finally I think it’s worth noting that the investor participants had a very large total assets so about sixty eight trillion dollars. They traded broadly across a treasury types including bills and notes bonds tips and strips and treasury futures. last rob I think it’s important to note, because this was such are an important focus of the study, that the participants have very good sized portfolios of both off the run and deep off the run securities. So they could speak with both experience and conviction on the investment on those products and the impact that additional transparency in the public domain might have on those products.

So Rob, with that as background, I know that SIFMA has constructed a variety of their views on treasury market reform and the impact that that should have the approach that should be taken. Can you take a couple of minutes and walk us through those positions and some of your thinking on that?

Rob Toomey: Sure, and this is something we’ve been working with market participants and our members for a number of years, and there has been a lot of discussion in academia in the official sector on treasury market structure, but why is it important? It’s important because the treasury markets are important. Treasury securities are in fact, they really are the underlying currency of global financial markets, and all market participants need to really have confidence in the structure of this market, that it’s fit for purpose, it’ll do what people expect it to do and people expect the treasury market to do quite a bit from hedging to risk free investment, to raising funding, but also fundamentally so that the government can finance its debt at its lowest cost to the tax payers over time. It’s all important to make sure that market is working in a way that makes all those functions efficient.

So, broadly speaking as we’ve discussed with our members over years, we support any kind of broad look at enhancing, and these are the key words here, the resiliency and the capacity of the treasury market and we believe treasury markets, all markets, change over time. Carefully calibrated reforms can encourage continued market and enhanced market participation from a diverse group of market participants. Some proposals, transparency is one of them but, we have a recent proposal on clearing out of the SEC have been proposed this year and we’re working with our members all on the right now on the clearing proposal to communicate our views back and the impacts that these proposals all of them and all of the thinking around might have on the market and might have on market participants and I think that’s where the study comes in is the impact on market participants.

Bradley Ziff:  So, Rob that’s a good place to kind of move on to the I think the next appropriate topic. There was an RFI from treasury. We obviously examined it very carefully for our study. SIFMA filed comment letter, can you talk us through some of the main findings and conclusions of that comment letter from your members.

Rob Toomey:  Yeah, sure. We took we the full summer to put that together and this was consistent with thinking we had done over the last couple of years again as we reviewed market structure generally but, first off I would distinguish between two sets of information and transparency. One is regulatory transparency and we’ve always been supportive of making sure the regulatory side gets the official sector, gets all the information it needs to be able to supervise this market in an appropriate manner. That means and there are gaps and some of that data those gaps are being closed by the official sector over time and we think that’s a very important function so that in almost real time the official sector can see and deal with problems in this market.

However, I think the other side, and this gets us to the treasury RFI, the benefits of additional public disclosure are a little less clear and there’s potential for some down sides here both intermediaries and investors and these could be significant again over time into the market collectively. So, we also have to, I think, focus on and I mentioned this earlier one of the important pieces, the base important function of the treasury market which is in funding the U.S. government. Treasuries also serve as the bench mark risk free rate and they depend most of the post crisis regulatory for framework. So any changes to transparency which could impact the liquidity, which ultimately could down to creating more cost for tax payers through the auction process any changes to transparency needs to be very carefully considered. So, this really is where the study comes in and what Brad had described in talking to a broad swath of investor and user and the primary dealer community and it really was designed to solicit comprehensive feedback on all the topics that were raised in the RFI. SO, Brad, could you take us through some of the high level findings of the survey?

Bradley Ziff: Sure, I’m happy to do that and let me take a couple of minutes to pick up on some of those and emphasize I think also some of the issues you raised that came out in the SIFMA letter as well as those from other entities that submitted commentary back to the Department of Treasury. The investors and the market makers, as I pointed out that basically is the full set of participants in the study there were no third parties that were asked to participate, cumulatively share the view that the changes of any type to the regulatory parameter surrounding transparency associated with the treasury market needed to be considered, they needed to be implemented, but they emphasized over and over again very common terminology which we picked up on. They needed to be very careful, they needed to be prudent in the way that they were being implemented, they should not cause unnecessary distress to the stability of the market and it was very important that all of those needed to be thought about and calibrated over a sustained period of time.

The participants favored measured and selective public dissemination or transparency for on the run liquid securities in certain circumstances but, were mindful of the challenges for the off the run market. So as I think I mentioned before we highlighted and gave a disproportion and an amount of time to asking about illiquid securities because, that’s really where the debate was narrowed but, it was focused on the post trade transparency for that sector. There was broad support for sharing this information with regulators. So one of the things we picked up upon when we had our initial dialogue with SIFMA, was the division between thinking about the public dissemination and the role that regulators have had and the way that they needed to deal with items in the post crisis environment and we ask participants about delineating between those two and there was no doubt that this was not only a view of the trade association but quite frankly from a large number of participants some of whom had never really engaged on this particular topic before but when the questions were vented certainly felt very strongly about the differentiation between public and private information.

The participants also emphasized that this was part of a broader set of regulatory recommendations and considerations. Rob you mentioned the upcoming SIFMA discussion go and submission surrounding clearing there was also discussion surrounding funding based relaxation of capital requirements to increase liquidity in the market. The participants emphasized caution and moving in any precipitous fashion. They express consideration for appropriate mitigants. So, dissemination delays, volume caps, were two topics that were discussed in a great deal of detail in generally had broad support of the participants if, and I emphasize if, additional public dissemination steps were going to be taken. There was emphasis that moving ahead should begin with those mitigants and considered and for this to be fazed in without doing anything terribly drastic.

The investors and the dealers also shared the view that while enhanced transparency efforts were broadly accepted as being more feasible in the more liquid on the run market there was broad agreement that the changes to the off the run less liquid securities needed really significant additional scrutiny before incorporating them in a supplemental transparency initiative. In any study like this we always think about what is a statistically significant finding, and of this study over eighty per cent the study participants agreed that the less liquid market segments off the run should be subject to fewer or varied or no transparency requirements in the public domain. So, it was a pretty definitive set of findings. The participants also agreed that steps towards additive transparency should only accompany other efforts to build out liquidity in secondary market trading. So, most importantly recognition to providing more balance in the capital requirements for dealers and consideration of the public policy issues surrounding clearing of us treasuries. We’ve already kind of talked about the necessity of having those taken into account but, the participation or the participants felt pretty strongly that this was something that needed to be thought about as a cohesive effort.

The firms also recognized that PTF’s (Private Trading Firms) many of which use model driven or algorithmic strategies were playing and outside roll in the market. So, at this stage nearly fifty percent of the volume and they wanted additional scrutiny and oversight which was going to be necessary so that these participants would be brought further under the tent. Finally participants broadly felt that they did not identify any linkage, causation, correlation between the availability of information in the market and overall market resilience. So, the participants agreed that increased transparency regimes could have caused additional disruptions in the market not actually lessen the risk. When you took a look at specific market volatility from Covid in 2020, the REPO crisis and pressures in 2019 and the 2014 flash crash so, the numbers there also were pretty conclusive in that direction.

Rob Toomey: Brad, just following up, I know you did mention possible mitigants but, I just wanted to probe a little bit on what you got from the survey on the negative, and tell me if this is right, the feedback you’ve got from your survey participants was that liquidity if not done right and if not done with the proper mitigants liquidity is what could suffer over time and that obviously has a cost to the market but is that something people focused on and how do they think about liquidity in the treasury market?

Bradley Ziff:  Rob you’re absolutely right. I mean at the core of this when we ask the question and potentially people in a dialogue like this always think that you know maybe we needed to rephrase it. They would bring us back that the underlying concern here was liquidity in the market, it was not the in many ways the tangential discussions around how would you deal with transparency but, the end goal of how you would promote liquidity.

So the participants agreed for example, that the increase transparency regime would potentially disrupt a market liquidity, the ability for market makers to warehouse risk, investing in larger block trades over sustained periods of time, and ultimately the overall resilience of the treasury securities market. I want to go back and emphasize that I think the number participants who discussed that the markets liquidity was kind of on a knife edge and often times, you needed to depend upon the ability for the participants both on the investor side and the market making side to pull together or put together a very good sized trade. Which, could be implemented in one week and actually take multiple days or weeks to carry out, and that any public dissemination, especially in a illiquid market, could make that either difficult or more likely implausible and among all firm types participants found that additional transparency would lead to deal or hesitancy in the market and a reduction in the risk taking capacity.

This could result in lowered liquidity in the market specifically as we’ve talked about in the off the run space in the deep off the run space and they were in agreement that some of the academic evidence here might be mixed but they noted and they pointed to the fact that the expanse of knowledge when you look at the specific instances in the market where there was disruption that the ability relating to enhance liquidity was really going to be quite challenging in that regard.

Rob Toomey: Brad, and then finally as we get towards the end here, did you get any feedback from the survey participants on suggestions for kind of an appropriate way to sort of schedule and implement this over time and where there particular challenges that people noted that the official sector should be aware of?

Bradley Ziff:  I think that there was a broad consensus Rob over again eighty per cent that the phase in schedule for this needed to be a year or longer, with a lot people actually thinking that this could be two to three years. They pointed to a number of instances specifically, Dodd-Frank, Volcker, excetera, where a number of the requirements turned out to be operationally and from a regulatory perspective more ownerous than they were expecting.

So they wanted a delayed phased-in schedule to account for the anticipated investments, they emphasized the need for a grace period that the proper research and the industry outreach needed to be completed to look at the impact changes in the study. I think they felt that all of the mitigants that we’ve already kind of discussed volume caps delays and the value that they could bring to the market needed to be looked at very carefully. They wanted to be in a position to also look at different metrics that they were using for liquidity most of whom I think felt they combined around price and volume data and bid offer spread but the introduction of market depth now they wanted to make sure to have a better understanding of how that would be looked at.

I think finally they wanted to have a much better understanding as to whether enhancing transparency Rob, was actually going to enhance and promote market competition an increased understanding of the market. A couple of the hypotheses in the treasury RFI was that they argued that they felt that it was quite plausible that this would happen, and quite frankly at least three quarters or a larger number of our participants felt that enhanced transparency would not add additional intermediation to the market, it would not encourage additional investors to come in and in fact might operate in an opposite fashion.

Rob Toomey: Thank you Brad and thank you very much then for taking us through the results of the study as I said it will certainly supplement the comments we made in our reply to the Treasury RFI back in August. Thanks to everybody for listening today and picking up on some of the key discussion points that SIFMA’s raised in treasury market reform and if you want to learn more about SIFMA and our work to promote effective and resilient capital markets visit our website at and there you will be able to access the Sia Partners study as well as other documents including blogs and any of our comment letters on treasury market reform and you can do that at the resources section of our website. So, thanks for joining today.

Robert Toomey is Managing Director and Associate General Counsel, Capital Markets