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Remarks at the Meeting of the SEC Investor Advisory Committee

Commissioner Michael S. Piwowar

June 7, 2016

Thank you, Kurt [Schacht].

And thanks to each of you on the SEC Investor Advisory Committee (“Committee”) for giving your time and energy on behalf of the investing public. We are gathering today to discuss your recommendations and observations in two important areas, bond market structure and public company reporting. But before we do so I want to pause and recognize the fact that the Committee’s recommendations do not simply drop down out of the sky, fully formed and ready for consideration. Instead, they are the product of the numerous hours you have spent diligently working behind the scenes to identify issues, analyze their impacts on investors, and craft thoughtful recommendations. We sincerely appreciate all of your efforts.

I am particularly appreciative of the fact that you have focused part of your attention today on issues related to transparency in the fixed-income markets, and I would like to personally thank Barbara Roper and Steve Wallman for their efforts to keep these issues on the Committee’s agenda. Transparency is one of the cornerstones upon which we seek to build strong, efficient markets that work for all investors. Yet the mere mention of increasing financial market transparency is likely to elicit a chorus of concern from market participants worried about the potential impacts of any such changes.

I saw this tension first hand when I began my academic research in the fixed-income markets over a decade ago. At that time there were real questions about the effects that increased post-trade transparency could have on these markets, which had previously operated with very little public disclosure on pricing.[1] Yet despite the concerns expressed through numerous anecdotes about negative consequences, the academic literature found no ill effects on fixed-income markets resulting from increased post-trade transparency.

In fact, we can now look back at the institution of the Trade Reporting and Compliance Engine (TRACE) for the corporate bond market, and Electronic Municipal Market Access (EMMA) for the municipal bond market, as giant steps forward in the modernization of our fixed-income markets.

As successful as these advances in post-trade transparency have been, they did not solve all of the problems in our bond markets or clear the fog of opacity that hovers around the pricing of many products in these markets. The recommendations up for discussion today highlight the fact that there is still more that we can do to increase transparency in our fixed-income markets and improve the experience of those who invest in these products.

Some of these potential improvements are well on their way. In fact, in December 2014 the Municipal Securities Rulemaking Board (MSRB) adopted a new best execution requirement for municipal bonds.[2] Then last year the MSRB built upon that new rule by joining with the Financial Industry Regulatory Authority (FINRA) to publish coordinated guidance regarding how best execution obligations function in the fixed-income markets.[3]

More recently FINRA and the MSRB have been working to finalize new rules requiring the disclosure of markups on riskless principal transactions. These new requirements have been a long time coming, and are something I have advocated for since the start of my tenure as a Commissioner.[4] We continue to hear that this project is steadily moving forward, and that FINRA and the MSRB are engaged in a productive dialogue seeking to harmonize their respective approaches to the new rules. I encourage them to continue pushing to get these rules across the finish line in short order.

Once rules requiring the disclosure of markups on riskless principal transactions are in place, we will have implemented two of the three pieces of what I have called the “low hanging fruit” for regulatory reform in the fixed-income markets. I hope that accomplishing those goals will allow us to turn more focused attention to the last of the three pieces, the delicate task of adding pre-trade transparency to these markets. I know that Commission staff has been working hard to develop a proposal in this area, and that staff continues to meet regularly with industry and other interested parties to help inform its work. I look forward to seeing a staff recommendation on fixed-income pre-trade transparency in the near term.

Of course, the Committee is an important voice in the dialogue surrounding these improvements, and I believe your input will be an enormous help in advancing bond market reforms.

As we all know, the mere fact that work is being done on projects in the regulatory community does not guarantee that actual reforms will ever be implemented. The hallways of this building are littered with the bones of projects that died before seeing the light of day. So I encourage the Committee to keep the pressure on us at the Commission by continuing to push for greater transparency in the fixed-income markets. These are changes that our markets need, and that our investors deserve.

I look forward to today’s discussion, and I hope that it will both support and challenge SEC staff, FINRA, and the MSRB as they continue to work in this space.

[1] In his September 1998 speech calling for increased price transparency in the corporate bond market, former SEC Chairman Arthur Levitt famously quipped “The sad truth is that investors in the corporate bond market do not enjoy the same access to information as a car buyer or a homebuyer or, dare I say, a fruit buyer. And that's unacceptable. Guesswork can never be a substitute for readily available price data.” See Chairman Arthur Levitt, Speech by SEC Chairman: The Importance of Transparency In America's Debt Market (Sep. 9, 1998), available at

[2] See Press Release, MSRB Adopts Best-Execution Rule to Enhance Fairness and Efficiency in the Municipal Securities Market (Dec. 8, 2014), available at

[3] See Implementation Guidance on MSRB Rule G-18, on Best Execution (Nov. 20, 2015), available at; FINRA Regulatory Notice 15-46, Guidance on Best Execution Obligations in Equity, Options and Fixed Income Markets (Nov. 2015), available at

[4] See Commissioner Michael S. Piwowar, Advancing and Defending the SEC’s Core Mission (Jan. 27, 2014), available at

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