Bank of America Says SEC Rule May Impair Treasury Liquidity

This week’s decision by the Securities and Exchange Commission to require high-frequency traders of US Treasury debt to register as dealers may reduce liquidity but render the over $26 trillion market more stable, according to interest-rate strategists at Bank of America Corp.

The new rule, which takes effect in a year, will primarily affect principal trading firms that the SEC says can account for about 60% of inter-dealer trading volume. The firms are likely “to begin preparing for dealer registration relatively soon,” increasing their operating costs, Bank of America’s Ralph Axel and Mark Cabana say in a report.

“This could ...