Friday, January 12, 2018

SEC holds inaugural meeting of its Fixed Income Market Structure Advisory Committee

By Jacquelyn Lumb

SEC Chairman Jay Clayton welcomed members to the inaugural meeting of the Fixed Income Market Structure Advisory Committee (FIMSAC) and welcomed new commissioners Robert Jackson and Hester Peirce who were sworn in this morning. Clayton said it is difficult to overstate the importance of the fixed income markets, the growth of which has outpaced the equity markets. He also mentioned that the SEC’s Equity Market Structure Advisory Committee’s charter expired this week. The committee will not be renewed, according to Clayton, but will instead be replaced by a series of roundtable discussions on targeted equity market structure issues.

The formation of the committee and its members was announced on November 9, 2017. Its focus is on the corporate bond and municipal securities markets. Clayton emphasized the importance of ensuring that the SEC’s regulatory approach meets the needs of retail investors, in addition to companies and state and local governments. Michael Heaney, the non-executive director of Investment Management Americas, was appointed chairman of FIMSAC. He said the group intends to make actionable recommendations to the Commission. The FIMSAC agenda included presentations of research on bond market liquidity, followed by panelists’ discussions of the data.

Commissioner Michael Piwowar issued the same challenge to FIMSAC that he offered to EMSAC, which was to take control of the agenda and use the members’ collective expertise to advise the SEC on the areas that warrant the most attention. He noted that not so long ago, the lack of bond market liquidity was the subject of an intense debate amidst concerns about the financial markets. While many have moved on from the subject, Piwowar said that fears of potential liquidity shock remain, so it is important to consider appropriate regulatory measures.

Commissioner Kara Stein talked about the changes to the market with new investors entering and banks reducing their holdings. She also noted the increase in the size of the market, from $5.9 trillion in 2010 to $8.1 trillion in corporate bonds outstanding in 2016. Stein said that FIMSAC’s diversity of viewpoints will assist the SEC is assessing these changes and their impact on the market.

Heaney will reach out to members to serve on three subcommittees, all of which will report back at the next meeting in April.