Press Releases

Yesterday, the Task Force on Monetary Policy, Treasury Market Resilience, and Economic Prosperity, led by Chairman Frank Lucas (OK-03), held a hearing entitled, “Examining Derivatives’ Role in the Treasury Market.” Members reviewed how derivatives, such as futures and swaps, interact with the Treasury markets and increase market liquidity.

On Treasury Market Resilience:

Task Force Chairman Lucas said, “It’s important that Congress continues to support the resilience of the Treasury derivatives markets as these instruments are so closely linked to the bedrock of the global financial system. We must especially pay attention now as the industry undergoes a fundamental market structure shift with the looming deadlines for central clearing of Treasury cash and repo in December and next June, respectively.”

Full Committee Chairman French Hill (AR-02) said, "The strength of the U.S. Treasury market depends not just on its size, but on its depth, liquidity, and resilience. Today we will examine how derivatives markets support that foundation. These instruments play a critical role in price discovery, risk management, and overall market functioning—and when used effectively, derivatives certainly can enhance liquidity in Treasury markets, ensuring greater stability.”

On the Importance of Derivatives:

Full Committee Vice Chairman Bill Huizenga (MI-04) questioned witnesses on how companies can hedge risk efficiently using derivatives, to which Mr. Kevin McPartland, Head of Research, Market Structure and Technology, Crisil Coalition Greenwich, responded, “What we want corporations to focus on is building those products and services and making them accessible and as affordable as they can, giving the input costs. So, what derivatives allows them to do is focus on that right to focus on the product and the consumer and growing without as much having to worry about fluctuations in whether it be financial markets or agriculture or energy markets. This is arguably or maybe not arguably why the derivatives market was created.”

Housing and Insurance Subcommittee Chairman Rep. Mike Flood (NE-01) questioned witnesses on what a well-functioning futures market would mean for American farmers, to which Mr. Terrence A. Duffy, Chairman and Chief Executive Officer, CME Group, said, “I think it's critically important that the commercials and producers have the characteristics of the futures contract. Futures contracts were never designed for speculators. Speculators are embraced in futures markets, but they're not made for speculators. They're made for the commercials and producers. And that's a critical component. And I think we've lost a little bit of our sight going forward on that part. So, I'm a big proponent of speculation in markets, because I think it helps create liquidity for the market, because of a commercial wanting this price and a producer wanting that price. We need somebody to fill that in. I think for the great people in Nebraska and for the people of this world that need food, which comes out of Nebraska and other great midwestern states, we need to make sure it's efficient, and we need the ecosystem to work properly. So, I would hope that this congress would recognize the importance of all the ecosystems that go into allowing people to risk manage that, the food that we consume in this country, and that we ship across the world.”

On the Previous Basel III Proposal:

Financial Institutions Subcommittee Chairman Andy Barr (KY-06) questioned witnesses on how the previous Basel III Endgame proposal disadvantaged central clearing, to which Mr. McPartland responded, “Thankfully, we've seen an uptick in bank holdings of U.S. Treasuries. That's a great advancement and that's what we want. That is what those primary dealers are there for. But the previous or existing rules, in some ways, penalized banks for those holdings. They didn't recognize the true risk, right? So offsetting the derivatives with the bonds, right? Really that neutralizes a lot of that risk.”

Rep. Troy Downing (MT-02) questioned witnesses on how the Basel III reproposal alleviates issues caused by the 2023 proposal in regard to banks use of derivatives, to which Mr. Jeff Cranston, Head of Corporate Strategy, Optiver, replied, “I would first just want to highlight again that the Basel reproposal is a significant step forward for central clearing for the ability for, FCMs and prime brokers to be able to support that increased demand, as well as continue to support the entire derivatives landscape. So, I think significant progress has been made on that and look forward to continued process of prudential rulemaking. I think an additional area that could have further benefit for derivatives is recognizing the cross-product netting within derivatives, as well as the cross-margining aspect, and ensuring that those risk reducing attributes are reflected properly in risk-based capital measures.”

Witnesses Echoed the Work of the Committee:

Mr. McPartland said, “The transparency of this critical market has also seen tremendous growth. We have transitioned from weekly volume reports in 2020 that included only primary dealer activity to the current reporting regime that provides public access to daily trading activity by market segment, and the details of nearly every on-the-run U.S. Treasury coupon bond traded each day. This has brought the Treasury market more closely in line with other U.S. securities and listed derivatives markets, ensuring that investors and market participants of all types and sizes have the information they need to make informed decisions.”

Mr. Duffy said, “Derivatives are foundational to the price discovery, liquidity, and functionality of the U.S. Treasury markets. Highly liquid Treasury futures allow market participants to secure risk management hedges in customizable sizes without having to source the individual Treasury securities. … By providing a highly liquid and transparent, on-going, auction system, Treasury futures provide a forum for markets to quickly price in new and emerging information, assess the risk participants are seeking to hedge, evaluate market predictions, and achieve a clearer understanding of the future price of Treasury securities. The cash-futures basis trade serves as a link that brings market efficiency and forces prices to converge at settlement.”

Mr. Cranston said, “The U.S. Treasury market is one of the most important financial markets in the world. It provides the primary mechanism through which the federal government funds itself. Treasury securities serve as a primary benchmark of safe and liquid assets for banks, money market funds, pension plans, and central banks, enabling them to manage liquidity, secure financing, and store value. Maintaining a resilient and liquid Treasury market is critical to economic stability and to preserving the U.S. dollar’s role as the world’s reserve currency. Derivatives play a central role in supporting liquidity, enabling the transfer of risk, and promoting efficient price discovery and more orderly price movements in the Treasury market.”

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