The Securities and Exchange Commission is seeking to shine a light on trades
in the relatively opaque markets for corporate and municipal bonds.
Mary Jo White, the chairwoman of the S.E.C., said in a speech on
Friday that she had asked the agency to look for ways to make information about
bond prices more widely available.
The initiative, which would require the public dissemination of
price quotes generated in alternative trading systems and other electronic
markets, could enhance transparency in a sector of Wall Street where middlemen
may now have an advantage over investors, Ms. White said.
Just weeks after unveiling sweeping proposals for the stock
market, Ms. White signaled a renewed commitment by the S.E.C. to treat
oversight of bond trading as a priority. The agency in 2012 released several
recommendations related to municipal bonds, but that report did not produce the
changes that many in the market had expected.
The market for municipal bonds is highly fragmented, with tens of
thousands of issuers and nothing resembling a centralized exchange. Even the
market for corporate bonds, while more centralized and consistent than the
municipal bond market, lacks an easy way for average investors to find
information about price quotes. Bonds, in general, trade far less frequently
than stocks.
A requirement to make more information public could eat into the
profits of Wall Street brokerage houses, which can use the market’s opacity to
their advantage.
Ms. White, in the remarks delivered to the Economic Club of New
York, indicated that the S.E.C. would support other regulatory bodies as they
complete separate efforts to enhance oversight of the bond markets. She said
the agency would work with the Municipal Securities Rulemaking Board, a self-regulatory
body, as it completes a rule to make sure that investors in municipal bonds
have their orders executed on the best available terms.
The agency would also collaborate with the Financial Industry
Regulatory Authority, Wall Street’s self-regulator, and the municipal board to
help them provide guidance on how brokerage firms can follow the best-execution
requirement, Ms. White said.
In addition, Ms. White said the
S.E.C. would work with the two self-regulatory bodies as they write rules
governing the disclosure of markups in “riskless principal” transactions. In
that type of transaction, a brokerage firm executes a client’s order by
simultaneously executing an identical order in the market, with the intention
of eliminating its own risk. Brokerage firms can charge a markup for this
service.
Ms. White contrasted the bond market with the stock market,
which she said had largely benefited from advances in technology. In the bond
market, also known as the fixed-income market, it is an open question whether
“the transformative power” of technology and competition has “been allowed to
operate to the extent it should to benefit investors,” Ms. White said.
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