WASHINGTON -- Federal Reserve and Treasury Department officials plan to strengthen oversight of the government securities market by setting revised reporting rules for primary dealers.
The revised rules, outlined in the June 27 issue of the Federal Register, would require dealers to fill out a weekly report that specifies their holdings and financing activities of new Treasury issues.
Under current reporting procedures, dealers supply a variety of information on their trading activities to government regulators, but the reports do not specify holdings of new issues.
The Treasury regularly auctions a slate of bills, notes, and bonds that sets the tone for prices in the government market.
By tracking new issues, officials hope to get a better understanding of what is happening in the market in general and identify potential "squeezes," or shortages of an issue that drive up prices. If the Treasury determines a shortage is the result of manipulation, it has the authority to add to supply and drive down prices by re-opening an issue.
"The main justification for the revisions is to improve data required for market surveillance," the Fed said in its proposal. The Federal Reserve Bank of New York handles day-to-day surveillance of the government market on behalf of the Treasury, The information collected is also useful to the Fed in executing monetary policy in open market operations.
Fed officials asked dealers to respond to the proposed reporting rules by July 5. The relatively short comment period "is due to the fact that all 39 primary dealers have consulted with the Federal Reserve staff regarding these changes and have implemented all of the necessary programming changes," the Fed said.
The new reporting requirements are the result of two previous drafts that Fed staff presented to dealers over the last eight or nine months, one official said. There have also been a number of question-and-answer sessions between Fed officials and dealer representatives as the rules were shaped.
"None of the dealers objected to any of these changes," said one Fed official who did not wish to be identified.
Head traders at several large dealers who were contacted said they were unaware of the new reporting requirements. One trader shrugged off the issue, saying, "it's not that big a deal. It's all computer-generated." Officials at the Public Securities Association had no comment.
Following the Salomon Brothers Inc. bond scandal, federal regulators recommended tougher market reporting rules for dealers as part of a package of reforms. The new rules have the approval of the Securities and Exchange Commission as well as the Fed and the Treasury.
While the rules include a new weekly report for dealers, other weekly reports on dealer positions, transactions, and financing would be streamlined. In addition, a daily report on dealer positions in the Treasury financing market would be modified. Still, officials calculated that the changes, on balance, would add to dealer costs and reporting hours.