U.S. Securities and Exchange Commission Chairman Mary Jo White wants significant reforms made to the bond market. Speaking at the Economic Club of New York, White spoke about how trading in these fixed income markets are “highly decentralized.”
She expressed concern that technology was being used in these markets to make this decentralized approach to trading more beneficial for market intermediaries.
According to Reuters, White’s speech is a sign that the SEC is at last making an effort to implement recommendations it made in 2012 about the $3.7 million municipal securities market. The regulator is launching an initiative that would mandate that alternative trading systems and other electronic dealer networks make available to the public their best prices for municipal bonds and corporate bonds. This should give smaller retail investors, and not just certain select parties, pre-trading price data.
White also expressed support for a Municipal Securities Rulemaking Board-drafted measure that would mandate that municipal bond dealers abide by best execution rules. These regulations demand that broker-dealers execute orders for customers at the best price and in the shortest amount of time. The Financial Industry Regulatory Authority and MSRB would handle guidance for how to make best execution happen.
The SEC Chairman also said she supports rules that FINRA and MSRB are completing that would compel dealers to reveal more details about the compensation they receive for “riskless principal transactions.” This type of trade happens when dealers buy securities from customers and sell them right away to other dealers. Customers end up paying a mark-up for the trades that dealers don’t have to tell them is included.
The municipal bond market is currently very fragmented. There is no centralized exchange while there are tens of thousands of issuers.
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Bond Market Has $900 Billion Mom-and-Pop Problem When Rates Rise, Bloomberg, June 23, 2014
SEC's White calls for reforms in fixed income markets, Reuters, June 20, 2014
Mary Jo White of S.E.C. Seeks to Make More Bond Market Data Available, New York Times, June 20, 2014