Fragilities in the U.S. Treasury Market: Lessons from the “Flash Rally” of October 15, 2014

Antoine Bouveret, Peter Breuer, Yingyuan Chen, David Jones and Tsuyoshi Sasaki

No 2015/222, IMF Working Papers from International Monetary Fund

Abstract: Changes in the structure of the U.S. Treasury market over recent years may have increased risks to financial stability. Traditional market makers have changed their liquidity provision by increasingly switching from risk warehousing to risk distribution, and a new breed of market maker has emerged with the rise of electronic trading. The “flash rally” of October 15, 2014 provides a clear example of how those risks can materialize. Based on an in-depth analysis of the event—complementing the authorities’ work—we suggest i) providing incentives for liquidity provision, ii) improving market safeguards, and iii) enhancing the regulation of the Treasury market.

Keywords: WP; market; Treasury market; trading; market depth; Financial Stability; High-Frequency Trading; Liquidity; market participant; market liquidity; liquidity provision; market safeguard; High frequency trading; Futures markets; Futures; Treasury bills and bonds; Global (search for similar items in EconPapers)
Pages: 44
Date: 2015-10-13
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=43338 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2015/222

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().