US buy-side firms struggle to see benefit of new rules for electronic treasury venues

Research by Greenwich Associates found that only 44% of US buy-side firms thought the SEC’s proposed ruling on electronic treasury trading venues would benefit the market.  

Only 44% of US buy-side firms agree that proposed rules for electronic treasury trading venues to increase transparency will be beneficial for the market, research by Greenwich Associates has found. 

The report, which surveyed 67 US treasury investors across investment management firms, hedge funds, banks, insurance firms, and government agencies, also found that 86% believe the US treasury market is already generally transparent.

The new rules were proposed by the US Securities and Exchange Commission (SEC) in September, and would bring electronic treasury trading venues in scope of fair access rules and Reg SCI requirements.

Under the new rules electronic trading venues that meet certain criteria would be required to register as an alternative trading systems (ATS) or a national securities exchange.

Fair access rules would also require platforms to have clear standards for granting access to trading systems without limitations on any person from trading in a security and Reg SCI requires that technology and systems are secure and stable. 

Kevin McPartland, head of research for market structure and technology at Greenwich Associates and author of the report said this could disrupt the progress of markets who have implemented blocking. 

“In the days of voice trading, no one would suggest you have to trade with anyone who wants to trade with you. There is a reason why the sell-side works so hard to be included on their clients’ counterparty lists,” said McPartland. “With these levers applied to a trading venue, however, the proposed rules could, in fact, require you to trade with anyone that wants to trade with you.”

ATS registration includes the disclosure of broker-dealer operators, order types, and other parts of the operating model, and the SEC has the power to declare these filings ineffective, meaning it could prohibit a firm from operating.

Fair access and reg SCI rules are only applied to a platform when the ATS trades 5% or more of the average weekly dollar volume in four of the prior six months, or $25.95 billion per day according to data by the Financial Industry Regulatory Authority (FINRA). 

“While the requirements themselves are not necessarily that onerous, it is worth noting that even existing platforms could be moved to the side-line until their filing and its contents are approved,” added McPartland.  

Greenwich said that CME BrokerTec would have to comply with the rules as it saw an average daily volume in the second half of 2020 of $99 billion.

Elsewhere, if Tradeweb combines the recently acquired Nasdaq Fixed Income business with its Dealerweb platform, it would also fall in scope of the rules with average daily volumes in the same period of $26 billion. 

The proposed rules do not cover bilateral volumes or dealer-to-client platforms that operate via request for quote, ignoring half of the electronic trading volumes in the US.