Fed’s Williams touts need for more market data transparency

By Michael S. Derby

NEW YORK (Reuters) -Federal Reserve Bank of New York President John Williams said Thursday good data is key for market participants, central banks and regulators, and more should be done to increase its availability.

“Having access to an abundance of data is a wonderful problem to have,” Williams said.

“It’s important that we continue to prioritize transparency and clarity in data, especially financial market data. This is particularly true in the age of AI, when the sources of data are harder to trace.”

Williams, whose comments came from a text prepared for delivery before an event at his bank on the Treasury market, did not comment on the monetary policy outlook.

Williams also noted data can be misused, saying that during the recent inflation surge many have referred to market-based price pressure measures based on inflation option pricing, but that the quotes came from models rather than real-world trading.

“Based on our market contacts and public reporting of derivatives transactions, these aren’t data at all. There have been no trades reported in the U.S. inflation options market since early 2021,” he said.

Other market participants during the conference on Thursday voiced concerns over the lack of transparency in certain parts of the U.S. Treasury market.

“I am looking forward to the increased transparency in on-the-run transaction data” that industry participants are working toward, said Michelle Neal, who leads the New York bank’s Markets Group.

“Looking further ahead, we should consider whether to take additional steps toward increased transaction transparency across the Treasury universe, especially for the less liquid segments of the Treasury market, such as the off-the-run market, where transparency is currently limited.”

Off-the-run securities are older and typically less liquid issues.

Neal noted that the off-the-run section of the Treasury market was where market issues were concentrated in March 2020, as the coronavirus pandemic sent investors thundering toward cash, upending market functioning.

Even now, “there is little data on off-the-run trading available to the public, making it challenging for academics and others to study such stress events in detail,” Neal said.

Investors are waiting for the U.S. Securities and Exchange Commission to finalize a rule that would expand the use of central clearing for U.S. Treasuries – a key reform among many being studied by regulators to improve trading conditions for U.S. government bonds.

The rule could increase trading costs, some market participants worry, however, potentially discouraging investors from trading and undermining the objective to improve liquidity and resilience in the world’s biggest bond market.

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