(Fixes typographical error in first paragraph)
By Sarah N. Lynch and Lisa Lambert
WASHINGTON, June 20 The top U.S. securities
regulator on Friday set her sights on the less transparent
multi-trillion dollar bond market, saying new reforms are needed
to foster competition and reduce costs for investors.
"Trading in these massive fixed income markets...remains
highly decentralized, occurring primarily through dealers where
costs of intermediation are much more difficult to measure,"
said Securities and Exchange Commission Chair Mary Jo White in
prepared remarks at the Economic Club of New York.
"I am therefore concerned that in the fixed income markets,
technology is being leveraged simply to make the old,
decentralized method of trading more efficient for market
Much of the SEC's focus in recent years has centered on
concerns about issues in the equity market, such as high-speed
trading and trading on "dark pool" venues.
Friday marked the first time White has delved more into
concerns about fixed income markets, an area some say has been
neglected and is in need of reform.
In her speech, White threw her support behind several
reforms in the works that she said will be handled by the two
industry-funded regulators that police the municipal and
corporate bond markets.
One measure, which is being drafted by the Municipal
Securities Rulemaking Board, will require municipal bond dealers
to comply with best execution rules.
Best execution is a concept that is well-established in the
U.S. equities markets, but is not required in the municipal bond
markets. It essentially requires brokerages to execute customer
orders at the best price in the shortest possible time.
Another measure will entail rule-writing by the MSRB and the
Financial Industry Regulatory Authority to force dealers to
disclose more about their compensation for a type of trade known
as a "riskless principal transaction."
Such trades involve dealers purchasing securities from their
customers and immediately reselling them to other dealers.
Dealers often charge a mark-up to customers for these
trades, but are not required to disclose it.
"This information should help customers assess the
reasonableness of their dealer's compensation and should deter
overcharging," White said.
(Reporting by Sarah N. Lynch and Lisa Lambert; Editing by Chizu