Mary Jo White calls for more transparency in bond markets

The SEC chair says her plan would be a “transformative change” that would broaden access to pricing information that now is available only to “select parties”

Securities Exchange Commission Chairman Mary Jo White has called for more transparency in the bond markets.

In a recent speech in New York, she suggested the increased openness would especially benefit small investors. Yet, such a move could mean less profits for investment banks, warned a report from The Wall Street Journal.

“I have asked the staff to focus on a regulatory initiative to enhance the public availability of pre-trade pricing information in the fixed income markets, particularly with respect to smaller retail-size orders,” she said in the Economic Club of New York speech on Friday.

It would lead to the public release of “the best prices generated by alternative trading systems and other electronic dealer networks in the corporate and municipal bond markets,” White explained.

“This potentially transformative change would broaden access to pricing information that today is available only to select parties,” she added.

But White acknowledged that she wants to “minimize unintended consequences…. We must be mindful to strike the right balance of compelling the disclosure of meaningful pre-trade pricing information without discouraging market participants from producing it because of concerns that it will compromise trading positions.”

Her comments came two weeks after she outlined the SEC’s plan to strengthen the equity market structure and make it more transparent, as well as addressing issues related to high-speed trading, such as more oversight.

 

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On Friday, she noted that trading in fixed income markets “remains highly decentralized, occurring primarily through dealers, where costs of intermediation are much more difficult to measure than in other, more transparent venues.” As a result of her proposals, she said customers would be better in assessing the “reasonableness of their dealer’s compensation” and they would “deter overcharging.”

Her proposals for the bond markets may not be welcome by everyone. But The Journal speculated that “fund managers who invest in corporate and municipal debt would be among the biggest beneficiaries of the move, because they would have a better idea about how much supply and demand existed in the market for bonds they want to trade.”

“Initially, the impact to dealers would probably be negative,” Anthony Perrotta, head of fixed-income research at Tabb Group LLC, told Bloomberg News. Over time, “it will ultimately allow the markets to grow and become more fluid.”

Generally, more regulations are a burden to businesses and add costs.

Also, key in the markets is the use of improved technology. “I am … concerned that, in the fixed-income markets, technology is being leveraged simply to make the old, decentralized method of trading more efficient for market intermediaries, and its potential to achieve more widespread benefits for investors, including the broad availability of pretrade pricing information, lower search costs and greater price competition, especially for retail investors, is not being realized,” White said in the speech.

The bond market has been valued at $40 trillion, according to Bloomberg.

Contributing Author

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Ed Silverstein

Ed Silverstein is a veteran writer and editor for magazines, websites and newspapers. A graduate of Harvard's Kennedy School of Government, he has won several...

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