SEC Bond Market Panel Likely to Study Liquidity, ETFs: Clayton

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By Andrew Ramonas

The SEC’s new advisory panel on the corporate bond and municipal securities markets likely will examine issues related to liquidity, exchange-traded funds, and new technology, agency Chairman Jay Clayton said Nov. 28.

The Fixed Income Market Structure Advisory Committee, which the Securities and Exchange Commission established in November, will make recommendations on how to improve market efficiency and regulations. The panel may look at bond market liquidity, as well as the effects of algorithmic trading strategies and the growth of ETFs and other exchange-traded products, Clayton said at the Federal Reserve Bank of New York.

The committee includes representatives of individual and institutional investors, large and small companies, trading venues, dealers, and self-regulatory organizations.

“I believe that FIMSAC, given its diverse perspectives, is the appropriate body to address these and similar questions,” Clayton said.

ETFs, New Tech

ETFs and other exchange-traded products receive praise, but also criticism, for their use in fixed income markets, the chairman said.

Many market participants say the instruments are “very beneficial for retail investors,” Clayton said. Others question whether the products “create market volatility concerns.”

Over its tenure, the panel may tackle how the growth of exchange-traded products might affect liquidity in the fixed income markets, Clayton said. The committee could consider whether liquidity rules are needed for ETFs and similar instruments, he said.

The chairman said he’d also like to hear from the committee about how technology, such as computer-driven trading, is changing fixed income markets. High-frequency algorithmic traders were partly to blame for abnormally high volatility in the Treasury market in October 2014, according to U.S. authorities.

‘Mr. and Mrs. 401(k)’

Above all, the panel should look out for retail investors, who may not understand how fixed income markets work, Clayton said.

“I strive to analyze every decision that we make at the commission by asking myself whether we are acting in the best long-term interests of individual investors, or ‘Mr. and Mrs. 401(k),’ as I refer to them,” he said. “I believe the FIMSAC members should use this lens to their approach to working with the commission.”

The panel will meet for the first time in “early January,” the chairman said.

To contact the reporter on this story: Andrew Ramonas in Washington at aramonas@bloomberglaw.com

To contact the editor responsible for this story: Phyllis Diamond at pdiamond@bloomberglaw.com

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