The SEC’s proposed reforms, unveiled on Wednesday, are part of an effort by multiple regulators, the Treasury Department and the Federal Reserve to increase liquidity and reduce volatility in the world's largest bond market.
The Treasury market is currently bifurcated between bilateral trading, where an investor deals directly with a big bank, and 'all-to-all' platforms where banks, principal trading firms and some hedge funds trade anonymously with each other through a centralized order book - similar to stocks and futures exchanges.
Pacific Investment Management Company said in a note last week that it wants the entire Treasury market to move to all-to-all trading, saying that intermediated trades make the market “more fragile, less liquid, and more susceptible to shocks.”Still, the bond trading giant said it did not agree with a clearing mandate, arguing that Treasuries do not have “meaningful” counterparty risk and that the costs of clearing could discourage some participants from entering the market.