In remarks before the SEC Fixed Income Market Structure Advisory Committee, SEC Chair Jay Clayton emphasized the increasingly important role the fixed income capital markets are playing in the economy, and urged the Committee to consider issues of index construction, compensation for ratings agencies and risks presented by the LIBOR transition.
Index Construction
Mr. Clayton challenged the Committee to consider further disclosure regarding index construction. Specifically, Mr. Clayton urged the Committee to consider whether investors and investment advisers understand (i) how indices are constructed from a technical and market exposure perspective and (ii) the value judgments that index providers make, including whether to exclude certain companies.
Rating Agency Compensation Models
Mr. Clayton warned that the interests of rating agencies may not be "fully aligned" with those of investors. He stated that the SEC needs "to continually review whether market participants who substantially influence or are relied upon by investors are appropriately disclosing, monitoring and managing their conflicts." Additionally, he questioned whether there are alternative rating agency payment compensation models that would better align rating agencies' interests with those of investors.
London Interbank Offered Rate ("LIBOR")
Mr. Clayton urged market participants, central banks and regulators to coordinate efforts to address the pending transition from LIBOR.
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