The SEC has made a concerted effort in recent years to look more closely at the fixed income markets. But under the new leadership of Chairman Gary Gensler, that spotlight seemed to have dimmed—or so some thought.
For example, FIMSAC—the Fixed Income Market Structure Advisory Committee—which the SEC convened in 2018 under Chairman Clayton’s tenure, saw its charter expire in March 2021 It’s unclear whether Chairman Gensler will direct the staff to reconvene the group. FIMSAC’s purpose was to provide the SEC with diverse perspectives on the structure and operations of the U.S. fixed income markets, as well as advice and recommendations on matters related to fixed income market structure. Before its expiration, FIMSAC delivered numerous recommendations to the SEC and its staff, covering the gamut of policy, regulatory, operational, and market structure topics.
An additional example is the September 2020 proposed rulemaking to expand Regulation ATS (Reg. ATS) and Regulation Systems Compliance and Integrity (Reg. SCI) with respect to U.S. government securities. This rulemaking currently sits in limbo. The proposal would (1) eliminate an existing exemption from Reg. ATS for “Government Securities ATSs,” (2) require that Government Securities ATSs file new Form ATS-G (which would include various disclosure requirements), (3) apply the fair access rule under Rule 301(b)(5) of Reg. ATS to Government Securities ATSs that meet certain volume thresholds in U.S. Treasury Securities or U.S. “Agency Securities,” and (4) amend Reg. SCI to apply it to ATSs that meet certain volume thresholds in U.S. Treasury Securities or U.S. Agency Securities. The SEC also issued a concept release on the regulatory framework for electronic platforms that trade corporate debt and municipal securities.
Just when it seemed that Gensler’s SEC would focus predominantly on juicier topics in the equities markets, like PFOF, DEPs, and gamification, it appears that bond market policy considerations may not be at the bottom of the Chairman’s agenda after all. Gensler’s recent remarks at the SIFMA Annual Meeting shined some additional light on what the industry might see in 2022 in terms of guidance or proposed rulemaking in this area.
- In the $25-plus trillion non-Treasury fixed income markets, Chairman Gensler has asked the staff to consider reforms relating to post-trade transparency for corporate bonds, mortgage markets, asset-backed securities, and municipal bonds. Gensler noted that certain professionals have access to some amount of pre-trade price information in the corporate bond market and signaled that broadening the dissemination of that type of information might increase accessibility, competition, and liquidity in these markets.
- In the Treasury market, Chairman Gensler has asked the SEC staff to reconsider the approach in the September 2020 rulemaking mentioned above that would bring certain Treasury trading platforms into the SEC’s regulatory regime. Specifically, he has instructed the staff to focus on whether the SEC could further expand the proposal to bring more key participants and platforms into a proposed regulatory regime—again for the purpose of increasing transparency and competition.
- Sticking with Treasuries, Gensler has asked the staff to consider how to ensure that firms that trade significantly in the market are registered with the SEC as dealers, as well as how to bring about more central clearing in the Treasury cash and repo markets.
- Finally, as it relates to the broader fixed income markets, Gensler has asked the staff to consider ways to increase resiliency in response to the challenges money market funds faced last year, and contemplate appropriate measures to enhance the resiliency of the sector during times of stress.
The SEC’s intentions for the bond markets now seem clear. Details matter, and obviously those are yet to come, but, generally speaking, these are areas in which Gensler could see consensus with the majority of the Commissioners.