In his remarks at the Third Annual Conference on the Evolving Structure of the U.S. Treasury Market on November 28, 2017, SEC Chairman Jay Clayton commented on three areas of continued focus relative to the market for Treasury securities, including (i) regulatory coordination and its importance to the Treasury market; (ii) the importance of Treasury market trading data to regulators; and (iii) the SEC’s approach to future regulation of fixedincome markets and areas to be explored by the SEC’s new Fixed Income Market Structure Advisory Committee. 

Chairman Clayton discussed the importance of efficient and effective regulatory coordination, one of the eight principals he previously highlighted in his speech in July 2017 intended to “guide the work of the SEC” as it carries out its three-pronged mission of protecting investors, ensuring fair, orderly and efficient markets and facilitating capital formation. He recognized that the SEC is one of several regulators and governmental entities with responsibility to oversee the financial services area, including participants in fixed-income markets, and noted that coordination among these regulators is “essential to a well-functioning regulatory environment and, in turn, well-functioning markets.” Chairman Clayton then discussed the specific importance of coordination among the various authorities tasked with oversight of the Treasury market, as well as the importance of coordination and communication between these authorities and the participants in the markets they oversee. Chairman Clayton stated that he instructed the SEC staff to seek to engage with and listen to investors and other market participants in order to enhance the SEC’s ability to identify and understand new and changing risks, trading practices, technologies and competitive dynamics. Clayton pointed to the close regulatory coordination and cooperation on display in the Treasury market over the past several years, specifically noting the report of various regulators produced in the wake of unusually high market volatility on October 15, 2014 and the development and launch of TRACE reporting and the sharing of TRACE data and related analyses among regulators. 

Chairman Clayton noted that the Treasury market is fundamental to the U.S. economy, serving as the primary means of financing the federal government. He also noted that it is “the deepest and most liquid government securities market in the world” and reviewed some of the key roles the Treasury market performs in the global financial system. He stated that because of this, the SEC and other authorities responsible for the Treasury market need “a clear and precise understanding of the trends, dynamics and risks in the Treasury market,” which he noted can be provided, in part, through readily available Treasury market data. By way of example, Clayton noted a FINRA rule change, effective in July 2017, that requires broker-dealers to report transactions in Treasury securities to FINRA’s TRACE system. He identified this as a significant step forward with respect to both the scope and timing of regulator access to Treasury market data. Chairman Clayton also reviewed the Treasury Department’s Capital Markets Report, which he stated contained several thoughtful recommendations for the advancement of Treasury market data, including: (i) a requirement that the broker-dealers operating the major electronic inter-dealer Treasury platforms specifically identify proprietary trading firms in the trade reports that the platform operators submit to TRACE; (ii) support for the Federal Reserve Board’s intention to collect data from banks for transactions in Treasuries; and (iii) a recommendation that the CFTC share with the Treasury Department data concerning Treasury futures transactions that it collects from CME Group.

Chairman Clayton discussed the SEC’s new Fixed Income Market Structure Advisory Committee (FIMSAC). He stated that FIMSAC’s initial focus will be on the “efficiency and resiliency” of corporate and municipal fixed-income markets in an effort to help the SEC identify opportunities for regulatory improvements. Chairman Clayton noted his long-held belief that there should be “additional regulatory focus on these important and growing markets,” which are particularly significant to retail investors as well as U.S. companies and the national infrastructure. He expressed his expectation that FIMSAC will help ensure that the SEC’s regulatory approach to these markets reflects both where the markets are today and the needs of “Main Street” investors, companies and state and local governments. Chairman Clayton also reviewed topics and questions that FIMSAC may address, including (i) bond market liquidity, including the effects on liquidity of reductions in dealer inventories and the growth of exchange-traded products; (ii) the broader implications of the growth of fixed-income funds and exchange-traded products; (iii) whether the SEC should undertake efforts with respect to pre-trade transparency in fixed-income markets; and (iv) investor education regarding the basic principles of fixed-income markets. 

The transcript of Chairman Clayton’s remarks is available at: