At an SEC Fixed Income Market Structure Advisory Committee ("FIMSAC") meeting, SEC Chair Jay Clayton and Commissioners Elad L. Roisman and Hester M. Peirce addressed issues concerning rating agencies, bond pricing, pre- and post- trade transparency and the effect of internal fund crosses (see here, here and here).
In their remarks, the Commissioners weighed in on the Committee's considerations and recommendations on several issues. Some highlights:
- Ratings Agencies - Mr. Clayton urged FIMSAC to consider the role of ratings agencies on market structure during times of volatility, including effects on investment strategies that mechanically react to credit ratings. Ms. Peirce stated that in order to achieve more competition among ratings agencies, the benefits of any new regulatory requirements must be balanced with the burdens of such requirements.
- Bond ETFs - Mr. Roisman encouraged FIMSAC to consider the effect of bond exchange-traded funds ("ETFs") on price formation in individual bonds. He also questioned how a wider display of bids and offers for individual bonds would influence prices used to determine the net asset value of bond ETFs.
- Transparency - Each of the Commissioners emphasized the importance of improving market transparency. Mr. Roisman stated that, in considering recommendations to enhance pre- and post-trade transparency, FIMSAC should consider how policies can facilitate continued innovation in fixed income markets.
- Cross-Trades - Ms. Peirce suggested that advisers to registered investment companies should have a greater flexibility to effect certain cross-trades that benefit both funds without risking an enforcement action.
Originally published June 03, 2020
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