☆ Task Force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity: Examining Deriva... Show more Task Force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity: Examining Derivatives’ Role in the Treasury Market Show less

Lucas, Frank D.: The Task Force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity will come to order. Without objection, the Chair is authorized to declare a recess to the Committee at any time. This hearing is entitled Examining Derivatives' Role in the Treasury Market. Without objection, all members will have five legislative days within which to submit extemporaneous materials to the Chair for inclusion in the record. I now recognize myself for an opening statement. Welcome to today's Task Force hearing examining derivatives' roles in the Treasury market. Thank you to our witnesses for providing their invaluable expertise. The Treasury market is the deepest, most liquid, most important market in the world. Today we're discussing an aspect of the Treasury market that continues to grow in popularity and raises important questions ahead of anticipated market structure changes in capital rulemaking. Part of the depth and liquidity of the Treasury market is driven by trading on swaps, options, and futures on the underlying Treasury. These derivative markets are key to managing risk. They allow market participants to hedge their exposures, create demand for Treasuries, increasing market liquidity, and supporting price discovery and health of the broad Treasury market. A recent paper from the Chicago Fed has pointed out enhanced liquidity in the Treasury market strengthens the functioning of the cash market, and the enhanced liquidity supports more stable, lower public financing. It's important that Congress continues to support the resilience of the Treasury derivatives market as these instruments are so closely linked to the bedrock of the global financial system. I must especially pay attention now as the we, I should say, must especially pay attention now as the industry undergoes a fundamental market shift, with the looming deadlines for central clearing of cash Treasury and repo in December and next June respectively. The SEC, under the leadership of Chairman Atkins, has been responsive to industry comments and proposals to make sure that the transition to mandatory clearing causes no disruptions in the Treasury market. A recent example includes the approval of two additional CCPs, increasing mark customer choice and competition while reducing concentration risk. Demand for Treasury derivatives is rising, and with it demand for cash and for clearing. It is absolutely critical that our capacity for clearing these transactions rises in kind. Last week, the SEC and the CFTC also granted exemptive relief to allow customer cross margining for offsetting exposures of cash in future positions for Treasuries. This is a welcome step to ease the transition to mandatory clearing, and as witness testimony has pointed out, will allow the redeployment of capital back into our Treasury markets. I'm hopeful that all this risk reducing activity will be fully recognized in the capital rules proposed by the bank regulators, as we discussed yesterday in the full committee hearing on this topic. We, I should say, have substantial data and experience on the benefits of clearing from a risk management and margin efficiency standpoint due to its use in derivatives markets. But getting the transition right to the broader Treasury market will take Congress, the regulators, and the industry working in lockstep together. I look forward to our discussion today, and I yield back. I now recognize the ranking member of the task force, Mr. Vargas, for four minutes for opening statement