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Hal Scott & John Gulliver, Enhancing Post-Trade Transparency for U.S. Treasuries (2022).


Abstract: This report is the second in a series of reports by the Program on International Financial Systems on enhancing the market structure for trading U.S. Treasuries (“cash Treasuries”). In this report, we assess whether policymakers should mandate the public dissemination of comprehensive real-time transaction-level data in cash Treasury markets.As described in the first report in this series, the March 2020 stress in cash Treasury markets and the September 2019 Treasury repo market spike were strong indications that Treasury markets are vulnerable to severe bouts of illiquidity that can threaten the broader financial system. Measures to strengthen the liquidity and resiliency of Treasury markets should therefore be a priority for U.S. policymakers.Policymakers and market participants have recently voiced support for mandatory post-trade transparency in cash Treasury markets. The Group of Thirty, an international body of current and former regulators, academics, and market participants, recommended in its 2021 report on Treasury markets that real-time transaction-specific data on cash Treasuries should be made public in a manner similar to the way that data on U.S. corporate bond transactions are currently disclosed. And Securities and Exchange Commission (“SEC”) Chairman Gary Gensler indicated in a speech this year that “[p]ost-trade transparency promotes liquidity and helps investors” and recommended that the Financial Industry Regulatory Authority (“FINRA”) consider publishing transaction-specific Trade Reporting and Compliance Engine (“TRACE”) data on cash Treasuries. Legislation has also been proposed that would bring comprehensive post-trade transparency to the cash Treasury markets.This report provides a unique survey of the current structure of cash Treasury markets and relevant academic literature on the effects of mandatory post-trade transparency. Part I describes the extent of pre- and post-trade transparency in cash Treasury markets, finding that pre- and post-trade data in cash Treasury markets is available only on a limited and fragmented basis.Part II evaluates the academic literature on the effects of mandatory real-time post-trade transparency in various asset classes, including corporate bonds, municipal bonds, and agency mortgage-backed securities, finding that post-trade transparency increases liquidity, reduces transaction costs, and enhances price efficiency. We therefore conclude that U.S. policymakers should mandate the public dissemination of real-time transaction-level data in cash Treasury markets.