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Remarks at Meeting of the Fixed Income Market Structure Advisory Committee

June 1, 2020

Thank you, Michael [Heaney]. Good morning everyone, and welcome to this year’s second meeting of the Fixed Income Market Structure Advisory Committee. Thank you for joining us. I am glad we are able to meet virtually today.

I would like to welcome Mark Kim of the Municipal Securities Rulemaking Board as our newest member of the Committee, and I would like to thank the former MSRB designated representative, John Bagley, for his meaningful contributions to the Committee.

I will begin today by noting my appreciation for the work of the Committee and the commitment of its members. Your excellent service, thoughtful deliberation and recommendations have placed the Commission in a better place to meet the current market challenges.

With this exceptional service and current market conditions in mind, after consultation with my fellow Commissioners, Committee Chairman Michael Heaney, Trading and Markets Director Brett Redfearn, and other members of the Commission staff, I am requesting that the FIMSAC be extended to March 1, 2021, with a specific, time-limited mandate to:

  1. Bring the current work of the subcommittees, including matters discussed today, to completion; and
  2. Continue to assist the Commission with its ongoing efforts to monitor and, as necessary or appropriate, respond to the effects of the COVID-19 pandemic on our fixed income markets.

Here, I want to be clear with each member of the Committee. I recognize that you have many personal and professional obligations and that those competing considerations have been amplified by recent events. Also, you have already given us more than we asked – and more than what could reasonably be expected – particularly from volunteer service. So, if you choose not to extend your participation into early 2021, I completely understand. Also, we are not looking for an answer today. Take your time, and working with Michael, please make individual and collective decisions that make sense for each of you.

Turning to today’s agenda, we have five panels and presentations, including recommendations from (1) the Technology and Electronic Trading Subcommittee, (2) the Credit Ratings Subcommittee, and (3) the Municipal Securities Transparency Subcommittee. Today’s discussion includes the topic of bond pricing services, and I am eager to hear how these services are used, including by bond funds, and how these services performed — in various market segments — during our recent bout of market volatility. I am also looking forward to new insights and commentary on (1) transparency in the corporate bond “block trade” market and (2) the Committee’s recommendation on internal fund crosses.

I understand that you will also consider a multi-pronged recommendation on credit ratings. For various reasons, including the emergence of new areas of focus as a result of the general and sector-specific effects of COVID-19, it is important that we consider potential policy approaches with rigor and pragmatism.

I note here that, globally, there is a renewed regulatory interest in the influence of rating agencies on market structure and market function in times of volatility and broad economic stress. For example, in coordination with the Financial Stability Board (FSB) and the International Organization of Securities Commissions (IOSCO), the Commission’s recently-established COVID-19 Market Monitoring group is analyzing the potential risks and downstream effects of investment strategies and mandates that mechanically react to credit ratings, directly or through index tracking.[1] I hope that your views and recommendations will complement our work, as well as the work of other regulators, in this area.

To be clear, this is not easy. There are multiple important considerations. Recent events have again demonstrated the importance of credit ratings to investors and issuers — for example, very few institutional investors (much less individual investors) have the resources to perform a rigorous, sector-by-sector (much less an issuer-by-issuer) analysis of the corporate credit market in a month’s time, yet many investors and other market participants — including market and prudential regulators — have benefited from this work. Recent events also have amplified long-standing questions around (1) alignment of interests, (2) ratings-based balance sheet structuring by issuers, and (3) investor over-reliance on particular ratings. Note that those last two items are related — if investors “reward” certain ratings, issuers are incentivized to pursue capital structures that capture those rewards. My view is we must continue to strive to advance the statutory goals of fostering accountability, transparency, and competition and mitigating potential conflicts of interest, without diminishing the market-wide benefits of, but also recognizing the inherent risks and limitations of unchecked reliance on, the credit rating services currently provided.

Finally, I understand that you will consider a recommendation on municipal securities pre-trade transparency. As the recommendation states, this is not a new issue, and I believe my views on the importance of transparency — by municipal issuers, investment advisers and retail brokers — are well known. For example, last month, I issued a statement with Director Rebecca Olsen of the Office of Municipal Securities on the importance of current disclosure in our municipal markets, particularly in light of the effects and uncertainties created by COVID-19.[2] The municipal securities market is complex and multi-faceted, yet it is dominated by retail investors.[3] Over the years, we have intensified calls for municipal issuers to provide investors with more timely information, and also generally raised awareness about the importance of investor access to current financial information.[4] I look forward to hearing about specific ideas to improve transparency in this space.

Thank you again for joining us today, and I look forward to your response to our request to continue to provide us with your valuable insights into early 2021.

[1] See Statement by Chairman Jay Clayton and Chief Economist and Director of the Division of Economic and Risk Analysis S.P. Kothari, May 13, 2020, available at

[2] See Statement by Chairman Jay Clayton and Director of the Office of Municipal Securities Rebecca Olsen, May 4, 2020, available at

[3] At the end of 2019, Main Street investors held directly, and indirectly through funds and other managed products, over 72 percent of the market, or approximately $3 trillion of outstanding municipal securities. See id.

[4] See id. at n.12.

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