Blog: Evolving Treasury Market Structure

Recently, GreenKey took the opportunity to provide comments to a request for information on “Evolving Treasury Market Structure” from the U.S. Department of Treasury.  This blog discusses the points we made in our response.

Voice trading is still an important component to the functioning of this market. The fact remains that financial markets still rely heavily on voice transactions.  The NY Federal Reserve Bank estimates that 62% of the D2C Treasury market is still conducted by voice.   There is a reason for this.  Communication using the spoken word has qualities such as tone, personality, nuance and immediate feedback.  That can provide important value to trading communications.

Additionally, consider a couple of statistics about voice communication: 

  • The average person types 40 words per minute but speaks 160 words per minute.  Voice provides a 400% increase in productivity.
  • In 2013, voice search usage on engines such as Google was negligible.  Today, it exceeds 10% of all search traffic. 

Voice isn’t going anywhere.  The financial markets run on voice: price discovery, market color, any large or complicated order and even many regular orders.  

Future Regulations Should Include Voice Trading and Transcription

Many laws and regulations have been enacted around the world that recognize the importance of voice trading (and retention of voice trading recordings) ranging from the CFTC Rule 1.35 (requiring retention of certain derivative financial transactions no matter how executed, such as by telephone or voicemail), to MiFID II (requirement for investment firms to record telephone conversations and electronic communications relating to own account and clients’ transactions. This includes telephone conversations that are intended to result in the conclusion of a transaction). 

Including recording and transcription of voice transactions in future regulations would greatly assist regulators’ ability to view and understand the market. A retention requirement for voice data consistent with written and electronic data would be advisable.
In our experience, there is a wide range of recording quality that exists among market participants.  There should be a requirement that the recording be, at a minimum, audible.

Some of the situations that we have come across include:

  • 10 separate lines were recorded on one line (so that the listener heard 10 conversations at one time rendering the recording useless)
  • Audio quality that sounds no better than “white noise”
  • A market participant who opens a line that he/she knew would be recorded (line 1) and then proceeds to carry on conversations on other lines within the telephone system that are not recorded (lines 2-20).  So, at the end of the day, the recorded line contains only silence.

    
Aside from requiring recording and retention of voice data, regulators should also require that the parties must transcribe those conversations (or, at least a percentage of the conversations).  Transcription technology exists today and it is reliable, effective and cheap.  All conversations should be recorded and audible.  From that universe of recordings, a certain percentage of the conversations should be required to be transcribed.  Compliance departments would then be tasked with auditing/reviewing the transcripts (a certain size of the overall universe) to ensure that the market participants are in compliance.

Additionally, transcription is searchable.  Thus, requiring this function will save money for market participants in the long run.  A compliance department could work with regulators to focus on certain search terms that would likely pick up market abuse activity.  We would also recommend that compliance officers read a certain percentage of the transcripts.  Nonetheless, the search capacity is a very powerful compliance tool.

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