From: G. Wilson
Jonathan G. Katz
Subject: Release No. 34-51998
Dear Mr. Katz:
As an investor in listed and OTC equities for more than 40 years I have often wanted to purchase corporate bonds, but refrained from doing so for the following reasons:
(1) Except for a very small number of listed issues, pricing of bonds has generally been a mystery for individual investors. One is unable to obtain clear information about most bonds' prices. Mark-ups and last sale and trading volume information are essentially unavailable; the bond buyer is at the dealer's mercy.
(2) Being accustomed to the fuller disclosure of price information in equity markets, my inclination has been to avoid purchasing corporate debt directly; my only corporate fixed income exposure has been through mutual funds.
I am confident that many individual investors like me will enter the public debt market directly if their comfort level about price fairness is increased. Who wants to buy a product without knowing if the price is competitive? Unlike most goods and services, price comparison of unlisted bonds is awkward, and inefficient, if at all possible. Institutional investors have the resources and relationships to negotiate their bond purchases and sales. The individual investor is usually stuck with one or, in rare cases, several dealers' inventories, at essentially fixed prices.
With companies whose common stock is listed on the NYSE no disclosure specific to their debt securities is necessary to inform investors about those firms' business, prospects, or financial condition. If investors purchasing billions of shares of companies' common stock are sufficiently protected by existing disclosure under the Exchange Act, why should those investors be unable to rely on it when buying bonds?
U.S. capital flow is efficient and fair largely due to the existence of auction markets, characterized by real-time, accurate, price reporting. Yet those markets are inoperative for a huge segment of public companies' securities, viz., unlisted bonds. The Commission will, by adopting the proposed exemptive order, serve the public interest by bringing the auction process to life for the bond market.
William T. Dolan