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Banks have, in some ways, already stepped back from this traditional role. New regulations put in place after the global financial crisis of 2008 mean it’s more expensive for them to hold debt securities, including Treasuries. Some hedge funds and high-speed traders have become bigger participants in certain segments of the bond market. Access has been limited, however, and some other participants, such as large asset managers and institutional investors, have been excluded.
“In theory, all-to-all trading may improve market liquidity by increasing the number and diversity of potential counterparties to a trade or reshaping the competition among them,” the IAWG report said, recommending further study of the issue. However, Darrell Duffie, a professor at Stanford University who was an advisor to the G30 working group on Treasury market stability, says all-to-all trading does not necessarily have to be bad for banks. The transition to the new system would mean banks intermediate fewer trades and lose market share. But that’s only bad for them if the market stays the same size.“If the market doesn’t increase in size, the dealers lose.