PHOENIX – The Securities and Exchange Commission’s Fixed Income Market Structure Advisory Committee kicked off its first meeting Thursday, an initial step aimed at giving the SEC a better understanding of a the growing bond markets' importance to many retail investors, but munis were hardly mentioned.
The 23-member FIMSAC group, which was formally created Nov. 15, includes several significant players in the municipal market but focused its first discussion primarily on liquidity in the corporate bond market.
The commissioners and panel members also touched on the broader reasons for their work as well as some more broad concerns about the bond markets generally.
“First, these markets are massive, and growing,” SEC chairman Jay Clayton said in his opening remarks. “Second, the fixed income markets significantly impact other markets, both directly and indirectly. For instance, and perhaps most obvious, is the connection to the interest rate derivatives market.”
“Third, the corporate and municipal debt markets, which are appropriately the initial focus of this committee, are particularly significant to retail investors. Individual investors are key participants in these markets, both directly and indirectly through pension funds and other pooled vehicles. I am very pleased that in recent years the commission has focused on retail investor initiatives in the corporate bond and municipal securities markets. I intend for that focus to continue.”
Clayton noted that the municipal market is “large and vital” and has experienced significant growth in recent years. He called munis critical for U.S. infrastructure.
Bond dealers have expressed worry that regulations designed to keep banks solvent in the wake of the 2007-2008 financial crisis have de-incentivized banks to be buyers of bonds. On the municipal side, this has been a key factor in the industry’s push to classify munis as high-quality liquid assets for purposes of federal banking rules.
Multiple panel members agreed that measuring liquidity is difficult because one can use a variety of different metrics. some committee members said that investors need to be aware that bonds may not be the right choice for investors looking for an investment that came be easily liquidated.
“I don’t know that liquidity is a God-given right,” said Richard Prager, head of global trading at BlackRock.
Clayton said that “main street” investors want liquid markets because they want to feel confident that they can turn their investments into cash should their situations change.
FIMSAC is chaired by Michael Heaney, non-executive director at Legal & General Investment Management America, and includes many corporate bond experts in addition to muni figures. Some market participants have speculated that the committee could eventually lead to more efforts to harmonize muni and corporate bond rules.
Thursday’s meeting was the first for new SEC commissioners Hester Peirce and Robert Jackson, who were sworn in that morning.