SEC Committee Tackles Disorderly Electronic Bond Trade Reporting
October 07 2020 - 5:54PM
Dow Jones News
By Matt Wirz
Liquidity is key in bond markets, but measuring it has grown
more complex as trades move onto competing electronic trading
venues. A Securities and Exchange Commission committee this week
moved to help.
The Fixed Income Market Structure Advisory Committee proposed
the SEC adopt new reporting standards aimed at improving
transparency and helping traders decide which electronic
marketplaces to frequent.
Stakes are high in the proposed regulatory overhaul for publicly
listed electronic bond trading platforms such as MarketAxess
Holdings Inc., Tradeweb Markets Inc. and Intercontinental Exchange
Inc., or ICE. The exact terms of the definition the SEC adopts
could raise or lower each venue's reported market share, and the
value of their stocks.
"You can't ignore the importance of this to investors in the
electronic trading platforms," said Kevin McPartland, head of
market structure research at Greenwich Associates.
The committee proposed the SEC adopt a clear definition of
electronic trading in corporate and municipal bond markets. A
uniform definition would capture a broader range of trades, avoid
double-counting them and standardize reporting across different
venues, according to a recommendation released at a committee
meeting on October 5.
Unlike stocks, which mostly trade on listed exchanges, bonds
trade over the counter, and the electronification of the market has
been fragmented as financial technology companies have offered
traders competing options to find buyers and sellers.
"The recommendation this week is trying to tackle the fact that
electronic venues all report their trading volumes and estimates
differently, so it's very difficult for any market participant or
regulator to get an accurate picture of what's going on," said Rick
McVey, chief executive officer at MarketAxess and a member of the
SEC committee.
"Transparency and investor confidence are essential to efficient
markets, and considered regulation of fast-growing electronic
protocols and platforms makes a lot of sense," Tradeweb CEO Lee
Olesky said. A spokesman for ICE declined to comment.
Electronic bond trading has grown since the March market crisis,
when investors rushed to raise cash by selling bonds. The increase
was sharpest in high-yield bonds, about 22% of which were traded
electronically in August compared with 17% in February before the
pandemic hit the U.S., according to data from Greenwich.
Still, trading air pockets at the height of the panic exposed
liquidity shortfalls in municipal and corporate bond markets. The
market freezes renewed concerns about liquidity -- a term sometimes
used to describe how easily traders can buy and sell at a stable
price -- but inconsistent reporting of electronic trading has made
postmortem analysis more difficult.
"Determining the effect of electronic trading on liquidity
conditions and transaction costs over time is difficult," the SEC
committee said in its recommendation.
In government bond markets, the yield of the 10-year Treasury
rose to 0.784% Wednesday from a close of 0.741% Tuesday, according
to data from Tradeweb.
Write to Matt Wirz at matthieu.wirz@wsj.com
(END) Dow Jones Newswires
October 07, 2020 17:39 ET (21:39 GMT)
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