Let there be light in fixed-income markets: SEC's White

Agency chief says greater transparency would promote price competition, improve market efficiency and facilitate best execution

Jun 20, 2014 @ 3:38 pm

By Mark Schoeff Jr.

Securities and Exchange Commission Chairman Mary Jo White on Friday called for regulations that would illuminate prices in fixed-income markets for smaller orders from retail investors.

“Properly implemented, rules providing for better pre-trade pricing transparency have the potential to transform the fixed-income markets by promoting price competition, improving market efficiency and facilitating best execution,” Ms. White said in a prepared remarks before the Economic Club of New York.

Ms. White said that she has directed the SEC staff to develop a regulation that would require public dissemination of best prices in the corporate and municipal bond markets, where decentralized trading occurs on a number of broker-dealer electronic networks. The initiative was first outlined in the SEC's 2012 report on the municipal securities market.

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

Prices are often opaque in the $11.3-trillion corporate bond and $3.7-trillion municipal bond markets because trading is fragmented among many different dealers.

The SEC also is working with the Municipal Securities Rulemaking Board and the Financial Industry Regulatory Authority Inc. to develop rules by the end of the year requiring disclosure of markups for corporate and municipal bonds in so-called riskless-principal transactions, according to Ms. White. These kind of transactions involve dealers buying and selling fixed-income securities at the same price and at the same time to fill two customer orders.

Investors need more information to determine whether their broker-dealer is overcharging them on fixed-income products, according to Ms. White.

“The importance of markup disclosure is especially pronounced in the current low-yield environment, where the amount of an intermediary's compensation can have a measurable impact on the yield that an investor receives,” Ms. White said.

Ms. White also highlighted the importance of finalizing “a robust best-execution rule for the municipal securities market.” The MSRB voted in early May to send its best-execution rule to the SEC, which must approve MSRB rules.

The MSRB recently launched an online tool designed to enable users to more easily find and compare prices for municipal securities with similar characteristics, such as geography, interest rates and maturity.

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