Treasury Market Practices Group Updates Best Practice Guidance to Address Automated Trading

The Treasury Market Practices Group ("TMPG"), a group of market professionals sponsored by the Federal Reserve Bank of New York, updated the guidance document: Best Practices for Treasury, Agency Debt, and Agency Mortgage-Backed Securities Market. TMPG updated the guidance for market participants by incorporating recommendations related to automated trading in covered markets.

The TMPG proposed a set of recommendations around automated trading based on the work done by its working group, which was formed to explore the scope of algorithmic and high frequency trading in TMPG covered markets. The best practice recommendations were also incorporated in the TMPG's consultative white paper on automated trading in Treasury market, published in April 2015.

Specifically, the updated TMPG recommendation suggests that market participants that employ trading strategies that involve high trading volume or quoting activity be mindful of whether a sudden change in these strategies could adversely affect market liquidity and should seek to avoid changes likely to cause such disruption. According to TMPG, these market participants should have plans in place that would allow them to change participation in a manner that incorporates the impact of the changes on market functioning. Further, TMPG recommends that market participants should not make sudden changes to trading strategies with the intention to disrupt market liquidity or functioning.

The TMPG also released a final version of its consultative white paper on automated trading in Treasury market, which describes the growth of automated trading in the secondary market for Treasury securities, as well as benefits and risks associated with this development.

See: Best Practices for Treasury, Agency Debt, and Agency Mortgage-Backed Securities Market; Automated Trading in Treasury Markets; TMPG Press Release.