November 7, 2023 (NO COMMENTS)

It was one of the most significant shocks to the US Treasury markets in decades – the early days of the Covid pandemic. Bid/ask spreads widened dramatically, and market depth deteriorated to levels not seen since the 2008 global financial crisis. People asked: will non-bank entities step in and support the markets? In March and April 2020, DRW’s market share across all maturities of Treasury futures – where liquidity was especially essential – increased by an average of 60% over the previous 12 months. But our ability to do this – and the ability of others like us – would have looked much different if non-dealers had been subject to a new proposed dealer rule from the US Securities and Exchange Commission, which would greatly expand the number of firms required to register as dealers with the agency. The SEC is touting its proposal as an important step in strengthening the US Treasury market. What it actually does is subject a wide swath of the market to cumbersome, expensive and restrictive registration and capital allocation requirements, wedging active traders into a ‘dealer’ category created by Congress to protect customers. Except that we – and many other trading firms that will be subject to these new requirements – do not have customers. In fact, in Treasury markets, we are the customer. And the proposal will in practice have the opposite effect on the consumers it seeks to protect.
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