A group of agency staff today released a report that, as Treasury Secretary Lew forecast last week, failed to find that new rules are necessarily hiking market illiquidity. However, the headline conclusion is, in our view, belied by the cautious tone of the report and its recommendation for continued study. The substance of the report also highlights risk drivers – especially the role of leveraged funds, high-frequency trading, and self-trading – that we expect to be the subject of policy action, not just additional study. Specific changes are also proposed to the rules governing government-securities dealers and trading venues.

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