SEC Commissioner Piwowar Discusses Fixed-Income Markets
In his remarks at the Annual Fixed Income Conference, SEC Commissioner Piwowar called for reforms to the fixed-income markets.
According to Commissioner Piwowar, progress was made recently in reforming the fixed-income space. He encouraged the MSRB and FINRA to continue that momentum by adopting a final rule on the disclosure of markups and markdowns on riskless principal transactions, and stated that the SEC must increase pre-trade transparency incrementally for municipal bonds. He also noted the importance of continuing to question whether the complexity of many municipal bonds serves the best interests of issuers and investors.
Regarding current challenges in the fixed-income markets, Commissioner Piwowar stated, both the corporate and municipal bond markets present unique issues from a regulatory perspective, given their "overwhelmingly over-the-counter nature." He encouraged the SEC to "leverage" academic talent, research and analysis to help inform market participants and regulators about these markets.
Additionally, Commissioner Piwowar stated that, "without a doubt," the primary challenge in the bond markets is liquidity. It is clear, he said, that bond inventories have been down since the financial crisis, and noted the importance of establishing a proper baseline against which to measure current dealer inventories to understand the magnitude of the changes. Furthermore, he noted, it is important to understand the underlying causes of the reduction. According to Commissioner Piwowar, recent actions by prudential regulators have "undoubtedly added to the risks and costs of holding large inventories of bonds." He stated that prudential regulators "have not been properly considering the unintended consequences of their actions."
Commissioner Piwowar stated that numerous groups are working on innovative market-based solutions to these bond and market liquidity issues. He explained that as a regulator, his role is straightforward: "stay out of the way." He stressed that market participants and not regulators should determine which ideas succeed.