While markets and financial regulators will always face the uncertainty of unanticipated shocks, strengthened market resiliency can help reduce the harmful impact from these shocks. It can provide greater protection – and confidence – to investors, capital markets, and the financial system.

Today, the Commission takes important steps to strengthen market resiliency by leveling the competitive playing field between and among market participants that act as dealers but have not registered as dealers.

In a 2022 speech before the securities industry, U.S. Treasury Secretary Janet Yellen referred to the Treasury market as “the bedrock of our financial system.” Secretary Yellen highlighted the need to enhance this market’s resiliency in light of recent “episodes of stress.”

In its 2023 annual report, the interagency Financial Stability Oversight Council (“FSOC”) urged financial regulators to strengthen resiliency through enhanced data transparency. The Commission’s reforms today move us towards this goal.

In recent years, high frequency trading firms that specialize in electronic and automated trading have achieved a significant share of trading in the Treasury market. Some unregistered firms trade in high volumes that are comparable to those of the most active registered firms.

The net result is a Treasury market that is now split between registered firms that operate with transparency, adequate capitalization, and operational integrity and unregistered firms with a significant presence in the market that don’t.

Registered firms provide the market with key data that make it easier to discern and assess market risks. These firms comply with applicable financial responsibility and risk management rules. Absent today’s reforms, our capital markets and financial regulators would continue to lack key data, and therefore limited oversight, over an unregistered segment of the market.

Dealer registration is designed to address the specific risks related to dealer activity and the associated risks to financial stability that may arise from the failure of a significant liquidity provider. These risks are real.

The Treasury market has experienced numerous shocks over the last decade, including some involving unregistered firms. In the March 2020 “dash-for-cash,” certain unregistered firms pulled back from the market because they lacked the capital to continue providing liquidity. Had the rule we are considering today been in effect, these firms would have been registered and may have been less likely to leave the market.

Unregistered firms are not subject to regulatory oversight nor Commission examination of books and records; and they are not subject to Commission or FINRA rules that address algorithmic trading risks. Associated persons of unregistered dealers are also not subject to FINRA’s registration and qualification requirements.

The fact that registered and unregistered entities performing substantially similar dealer functions are subject to such different standards makes the Treasury market less competitive and less transparent.

The final rules will increase competition among firms that are engaged in similar dealer activity. Applying consistent regulation to these entities will promote market stability by increasing the financial responsibility and operational integrity of these currently unregistered firms.

By requiring unregistered high frequency trading firms to register as dealers, today’s reforms provide for a standard that is more protective of investors and our markets.

Both the Commission and all market participants will gain the benefit of increased visibility into, and enhanced oversight of, the trading activity of these significant market participants.

Overall, today’s reforms will enhance the Treasury market’s resiliency and transparency, strengthening investor protection and promoting financial stability. I am pleased to support these important reforms that, in particular, will benefit our country’s vital $24 trillion Treasury market.