Opening Remarks at the Second Meeting of the Fixed Income Market Structure Advisory Committee

Chairman Jay Clayton

April 9, 2018

I am delighted to welcome you to the second meeting of the Fixed Income Market Structure Advisory Committee.[1]  Our inaugural FIMSAC meeting in January, which focused on bond market liquidity, was extremely productive.  I look forward to a similarly constructive discussion today.    

I would like to recognize and thank all of the Committee members, including Committee Chairman Michael Heaney.  We are grateful for your service, and I am heartened by your efforts in the short time the Committee has been operating. 

Following the first meeting, the Committee members organized themselves into three subcommittees, each of which is focusing on a key topic area in the corporate and municipal bond markets:  

• The first is a Transparency Subcommittee, which is considering issues relating to pre-trade and post-trade transparency in these markets.  
• The second is an ETFs and Bond Funds Subcommittee, which is considering the impacts and implications of the growing number of registered funds that are active in these markets.
• The third is a Technology and Electronic Trading Subcommittee, which is considering the impact of the growth of electronic trading platforms and the increased use of other electronic systems on the liquidity, efficiency and resiliency of these markets.

I am eager to hear updates today from each of these subcommittees.  

In closing, I will make a specific comment and a general observation.

My specific comment relates to pre- and post-trade "transparency" and, in particular, the recognition that reporting rules can substantially affect behavior of market participants.  In turn, those individual behavioral effects, in the aggregate, can have substantial market effects.  I know that our panelists know this well and from varying perspectives.  However, my sense is that many market participants and commentators do not understand the significant linkages among trade reporting, liquidity, volatility, efficiency, risk, cost of capital and fairness.  I ask our panelists to please explain their views on these linkages.  In particular, I ask them to focus on whether our reporting rules best serve the long term interests of our Main Street investors.

My general comment relates to the Commission's continuous effort to identify emerging risks and issues—including those that arise directly in the fixed income markets, as well as developments in other areas that may affect the fixed income markets.  We are keenly aware that financial markets are interconnected and ever-changing, and as a result, the risk landscape is ever-changing.  Today's fixed income trading markets are markedly different from those of a decade ago and, accordingly, we should assume that the risk landscape is different.  The subcommittees you have formed and the initial topics you have identified reflect this view, and I thank you for focusing on market risks.  I hope that this Committee will continue to help us in this regard.    

Once again, thank you all very much.