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Opening Remarks to the Investor Advisory Committee

Commissioner Michael S. Piwowar

Jan. 21, 2016

Thank you, Chair White.  And thanks to all of you on the committee for giving your time and energy on behalf of investors.

As always, Rick Fleming and his staff have put together an excellent agenda covering a number of interesting topics.  One particular topic, fixed income market structure, grabbed my attention as it is an area that has been near and dear to my heart for some time. 

Much of my prior stint at the Commission as a staff economist was spent researching fixed income market structure issues.  Part of what made that research so fascinating, and what continues to intrigue me, are the ways the bond markets operate so differently from the equity markets that take up the bulk of the Commission’s attention.

In some cases these differences highlight areas where greater regulatory attention is warranted.  To that end, I am pleased that we have seen recent progress on two key initiatives for the fixed income markets.  First, following on the heels of the Municipal Securities Rulemaking Board (MSRB) adopting a best execution requirement for municipal securities,[1] the MSRB and Financial Industry Regulatory Authority (FINRA) recently published coordinated guidance on how the best execution standard applies to fixed income products.[2]

Second, both the MSRB and FINRA have proposed rules requiring the disclosure of markups and markdowns on riskless principal transactions.[3]  While these rules have not yet been finalized, I am encouraged by recent conversations with both the MSRB and FINRA in which each indicated a desire to move towards adoption.  In particular, I am pleased to hear that these two groups seem to be coalescing around a common approach to the issue.  Adoption of a consistent markup disclosure rule at the MSRB and FINRA will be a huge win for investors and the fixed income markets as a whole.  

It is my hope that the positive momentum created by these two developments will carry over to an additional area of the fixed income markets where enhancements are needed:  pre-trade transparency.  I have spoken on the need for this type of transparency in the past,[4] and I look forward to hearing today’s panel discussion on the topic.

I am particularly eager to hear today’s discussion on the topic because the panel includes one of the, if not the, leading academic expert(s) on fixed income market structure, Professor Larry Harris.  Some of you may wonder whether I am making that statement merely because he is a former SEC Chief Economist, or because he was my boss at the SEC back when I first undertook research in the fixed income markets.  But I assure you that is not the case.  Rather, I mention it because Larry’s consistently impactful research often drives both academic and policy conversations related to the financial markets.  Not surprisingly, his current paper on bond market trading – which I trust he will share with us during his presentation – has generated a great deal of discussion on the topic of bond market structure.

In addition to Professor Harris, a number of other academics and market participants have identified the need for greater transparency in the fixed income markets.  For example, last summer the Financial Economists Roundtable, a group of senior financial economists, published a statement calling for pre-trade transparency in the bond markets.[5]  I have also heard from market participants about their frustrations with the lack of transparency in these markets, including experiences such as having their orders seemingly traded through after attempting to transact on electronic platforms. 

The empirical and anecdotal evidence of trade throughs raise legitimate questions about whether the current fixed income markets are working appropriately for all market participants.  Given that two key pillars of the Commission’s mission are to “protect investors” and “maintain fair, orderly, and efficient markets,” issues related to transparency in the fixed income markets are precisely where the Commission should focus its attention.

Of course, I would be remiss in calling for the Commission to focus attention in this area if I did not acknowledge excellent work already being done by the SEC staff currently looking at the question of how we might achieve greater pre-trade transparency in the bond markets.  I look forward to working with our staff, members of the Investor Advisory Committee, market participants, academic researchers, and my fellow commissioners to chart a path ahead on this important issue.

Thank you.

[1] See MSRB Regulatory Notice 2014-22, SEC Approves MSRB Rule G-18 on Best Execution of Transactions in Municipal Securities and Related Amendments to Exempt Transactions with Sophisticated Municipal Market Professionals (Dec. 8, 2014), available at

[2] See Implementation Guidance on MSRB Rule G-18, on Best Execution (Nov. 20, 2015), available at; FINRA Regulatory Notice 15-47, Guidance on Best Execution Obligations in Equity, Options and Fixed Income Markets (Nov. 2015), available at

[3] See MSRB Regulatory Notice 2015-16, Request for Comment on Draft Rule Amendments to Require Confirmation Disclosure of Mark-ups for Specified Principal Transactions with Retail Customers (Sept. 24, 2015), available at; FINRA Regulatory Notice 15-36, Pricing Disclosures in the Fixed Income Markets (Oct. 2015), available at

[4] See Commissioner Michael S. Piwowar, Remarks at the 2014 Municipal Finance Conference presented by The Bond Buyer and Brandeis International Business School (Aug. 1, 2014), available at

[5] See Financial Economists Roundtable, Statement on The Structure of Trading in Bond Markets (May 11, 2015), available at

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