OPINION: Clock Ticks on Fixed Income Market Reform
It’s heady times for the US fixed income market regarding regulatory reform. In the span of three months, the US Securities and Exchange Commission has accepted two recommendations from is Fixed Income Market Structure Advisory Committee.
The first proposal, made during FIMSAC’s second public meeting, suggested that the SEC conduct a pilot to study a possible change to the reporting regime for block-size corporate-bond trades. Earlier this week, the advisory body also recommend that the SEC, Financial Industry Regulatory Authority, and the Municipal Securities Rulemaking Board form a working group to review the regulatory framework for electronic trading platforms used in the corporate and municipal bond markets.
Two days after FIMSAC made its latest recommendation, SEC Chairman Jay Clayton instructed the SEC staff to review, assess, and present a public disclosure proposal similar to recently enacted Rule 304 of Regulation ATS for alternative trading platforms that trade government, municipal, and corporate debt securities.
The move for regulatory and market structure reform has gained steamed in recent years, especially after the Department of the Treasury released its recommendations for capital markets reforms in October 2017, but can the regulators, government, and industry keep this momentum up?
Although the markets operate differently, Wall Street has seen this scenario play out a decade ago with the development and launch of Regulation NMS that reformed the cash equities and options markets.
For several years the broker-dealer and exchange communities hemmed and hawed over whose ox the new regulatory framework would gore until the SEC approved the new national market structure.
Next, the 2007 and 2008 financial crisis hit and everyone’s focus went from market reform to keeping the global economy from reverting to the 19th Century.
It’s been a decade since the financial crisis, so the market is due for another shock soon.
Whether it comes from the Federal Reserve raising interest rates or a random series of Rube Goldberg events that set off the next global conflagration, Wall Street and its regulators should take advantage of this momentary calm and implement as much reform that is possible. No one knows when there will be a similar opportunity in the future.
Electronification of the municipal bond market also presents a large opportunity.
The success of Northbound trading showed electronic execution is way forward for the bond market.
IRS trading volumes have fragmented without an equivalence agreement.
Increased electronification has created useable and accessible real-time and historic trade data.
Members are evaluating payment-versus-payment for currencies not yet eligible for CLSSettlement.