The 12th U.S. Treasury Market Conference, held in September, focused on how to maintain smooth functioning in the Treasury market amid ongoing structural changes. The annual conference, which brings together market participants, representatives from the official sector, and academics, is convened by the U.S. Department of the Treasury, the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, the U.S. Securities and Exchange Commission (SEC), and the U.S. Commodity Futures Trading Commission (CFTC).
The year’s gathering included panel discussions on topics such as a proposal for investing Treasury General Account cash balances in repo, the implementation of Treasury market central clearing, and digital innovations in the Treasury market. Discussions centered on how implementing innovations and structural changes while maintaining Treasury market resilience requires transparency and collaboration among market participants.
Three central themes emerged with regard to the Treasury market’s evolution: modernization, innovation, and efficiency. In this article, we highlight these themes and describe how they are taking shape in the Treasury market today.
Modernization in Policy Implementation
Speakers and panelists stressed how the public sector has adapted to changing market conditions and implemented policy with efficiency and precision. Member agencies’ actions to hasten progress include the SEC’s central clearing mandate, the Fed’s evolving framework for policy implementation, and Treasury’s efforts to modernize systems and adapt buybacks in ways that enhance efficiencies for buyback program stakeholders while also remaining consistent with the liquidity support and cash management objectives of the program.
SEC Commissioner Mark Uyeda provided a progress report on implementation of the Commission’s Treasury Clearing Rule. He outlined SEC actions to expand clearing access, including new margin-efficiency offerings and the approval of two additional registered clearing agencies. He emphasized that compliance deadlines remain firm and urged continued industry engagement to ensure smooth implementation of the rule.
New York Fed President John Williams spoke about how the Fed’s operational framework for implementing monetary policy has evolved. He traced the development of the ample reserves regime and discussed key innovations in the Fed’s implementation toolkit, including the use of tri-party repo transactions and the introduction of the overnight reverse repurchase facility (ON RRP). These adaptations, he noted, reflect the Fed’s ongoing commitment to refining its approach in response to changing market conditions.
Federal Reserve Vice Chair Philip Jefferson addressed the Fed’s efforts to modernize the discount window. He outlined initiatives aimed at improving business processes, enhancing automation, and strengthening coordination with the Federal Home Loan Banks. These enhancements reflect a broader commitment to ensuring the discount window remains an effective and accessible tool within the Fed’s lending framework, he said.
System Open Market Account Manager Roberto Perli delivered a comparative analysis of different central bank monetary policy implementation frameworks. His remarks explored the different methods used across jurisdictions to achieve strong interest rate control, low opportunity cost, and reliable reserves management.
Finally, Deputy Secretary of the Treasury Francis Brooke detailed recent adjustments to the enhanced Supplementary Leverage Ratio (eSLR). Brooke highlighted how the reforms better position eSLR to act as a backstop to risk-based capital requirements rather than a binding constraint for banks and bank-owned broker-dealers.
Innovation in Financial Markets
An evolving regulatory landscape, the introduction of new technologies, and a growing focus on digital assets have encouraged innovation in the Treasury market.
Panel participants talked about new protocols for electronic trading that help improve market functioning. They discussed opportunities for matching less-liquid products and limiting execution slippage by bringing together different products, such as cash electronic trading and futures, to create a cash-futures-basis product. Panelists also discussed the growing use of streaming protocols.
CFTC Chairman Michael Selig talked about how the CFTC has supported innovation in regulation, including supporting the approval of FICC and CME’s cross margining agreements and other work on cross margining and portfolio margining. He noted work the CFTC has done to support the use of tokenized assets in financial transactions.
A panel addressed the growing presence of stablecoins and tokenized deposits in the Treasury market. The discussion focused on stablecoins, with panelists debating whether stablecoins will grow the investor base for U.S. Treasuries or result in a reallocation of investors. Participants discussed how stablecoins add to the market and considered the need to connect digital payment rails and traditional banking rails as they both grow. Panelists expressed optimism about how today’s frictions might be smoothed over by using tokenized products.
Operational Efficiency and Optimization
Another discussion focused on a proposal to invest Treasury General Account cash balances in repo and considered the best path for implementation to ensure smooth market functioning and balance sheet optimization for Treasury. Panelists emphasized the importance of predictability for market participants and concurred that early tri-party settlement would help ensure operational efficiency.
Deputy Secretary Brooke discussed enhancements in the Treasury buyback program, including expanding the counterparties eligible to participate directly to a limited number of non-primary dealers based on participation in Treasury auctions. “Broadening direct access to buybacks provides liquidity support directly to more market participants, reduces operational friction, and improves our trade execution through additional competition,” he said.
Participants also discussed central clearing. A panel addressed the readiness of the market for cash and repo central clearing. Panelists discussed interdealer brokers working toward getting their cash clients to engage with prime brokerage and clearing firms, and some highlighted that “done with” is currently the dominant access model, but “done away” may grow over time.
Looking Ahead
The SEC’s central clearing mandate is fast approaching, but work on clearing access models and market structure will continue even after the deadlines. The continued growth in tokenized assets will require new changes to infrastructure and changes to trading behavior. New ideas around policy implementation from Treasury and the Fed will radiate into the broader market. And all these changes are occurring against a backdrop of significant technological changes.
Despite these changes, the Treasury market remains critically important to global financial markets, and the official sector will continue the important work to support its smooth functioning. As President Williams said in his remarks, “Our role is to be prepared for the evolution so that there never is a cloudy day.”
Ellen Correia Golay is a policy advisor in the New York Fed’s Markets Group.
Trevor Graney is an associate in the New York Fed’s Markets Group.
Hannah Ueshiro is an associate in the New York Fed’s Markets Group.
The views expressed in this article are those of the contributing authors and do not necessarily reflect the position of the New York Fed or the Federal Reserve System.
