Opening Remarks at the June 2020 FIMSAC Meeting

Thank you, Michael. And thank you to all the FIMSAC members for contributing your time today. These last few months have presented new challenges and demands and I appreciate your continued commitment to sharing your experience and expertise with us. I’d also like to join Michael and Chairman Clayton in welcoming Mark Kim to the committee.

As is typical with FIMSAC, you have a full agenda ahead of you. Over the course of the day, the committee will address many important topics that have been the subject of your consideration for some time. Moreover, the issues you will be discussing today have become all the more timely in light of recent market conditions brought on by the effects of the current pandemic. I’d like to offer a few thoughts that I hope you will keep in mind as you move through today’s agenda.

I have previously shared with you my keen interest in pursuing opportunities to improve transparency in our fixed income markets.[1] I’m glad that many of today’s discussions will touch upon important issues related to both pre-trade and post-trade transparency. Transparency is a vital tool in assuring that our markets are fair, competitive, and resilient.

This morning, your discussions will focus on the role of important sources of pricing information in the fixed income markets. In the course of these discussions, I hope you will consider the effects of new drivers of price formation such as, exchange-traded funds (“ETFs”) and portfolio trading. I’ve heard from market participants that during the March volatility, fixed income ETFs and portfolio trading, as well as credit derivatives, played key roles in facilitating price discovery and risk transfer. Nevertheless, I believe it is worth considering their potential effects on price formation in individual bonds. For example, some questions to consider may be:

• What effect does portfolio trading have on the value of the price information disseminated through TRACE?
• And how would the wider display of firm or indicative bids and offers for individual bonds influence the determination of evaluated prices that may be used to derive fixed income ETF net asset values and portfolio trade prices?

Moving to the afternoon panels, you will return to two previously discussed topics, post-trade transparency for large size corporate bond trades and pre-trade transparency for municipal securities. Both are important issues that have been debated for a long time and I think should be top of mind for the Commission to address (hopefully in the near future). In thinking about the optimal regimes for pre- and post-trade transparency we must be mindful that our corporate bond and municipal securities markets are not static, they are constantly evolving, albeit at paces that may be different relative to markets for other asset classes. For example, over the last ten years these markets have not only grown substantially in size but also feature new and diverse participants, new trading venues, and new trading protocols. I’m interested in your perspectives on how we can pursue policies related to transparency that facilitate this continued evolution of the corporate bond and municipal securities markets through market-based innovations.

Thank you all again for devoting your time to serve on this committee. I look forward to today’s discussions and to continuing to benefit from your thoughtful engagement.