08 November 2017
Washington DC
Reporter: Jenna Lomax

SEC to form new fixed income market committee


The US Securities and Exchange Commission’s (SEC) is set to create a new Fixed Income Market Structure Advisory Committee (FIMSAC).

FIMSAC will provide the commission with different perspectives on the structure and operations of the US fixed income markets, as well as to give advice on matters related to fixed income market structure.

Chairman Clayton has appointed Michael Heaney, non-executive director for legal and general investment management for the Americas, as the initial Committee chairman. The board will have 22 other members.

SEC Chairman Jay Clayton said:“This committee will help the Commission ensure that our regulatory approach to these markets meets the needs of retail investors, as well as companies and state and local governments."

"I appreciate the committee members’ willingness to participate, and I would like to thank Commissioners Stein and Piwowar for their highly collaborative efforts in establishing the committee.”

According to the SEC, the committee will be “balanced fairly in terms of points of view represented” and will “make any determinations of actions to be taken and policies to be expressed, with respect to matters within the Commission’s jurisdiction”.

FIMSAC’s is expected to operate for two years from the date the charter is filed and will consist of 21 members.

In a speech at the FINRA and Columbia University Market Structure Conference in October, Commissioner Michael Piwowar, commented: “I am excited about this new group and hope that there will be public steps to advance it in the near future.”

“I fully expect the FIMSAC members to engage in difficult conversations, tackle challenging issues, and to generate constructive recommendations for the Commission to consider.”

“Of particular importance to me in the fixed income market structure space are areas like pre-trade transparency and the appropriate role of regulators vis-à-vis market-based solutions in providing that transparency.”

He added: “We cannot form a fixed income market structure committee without expecting them to discuss the long running topic of bond market liquidity.”

“There are enough issues within that topic alone to keep the committee members busy for some time, including the impact of bond exchange traded funds (ETFs) on liquidity in the underlying securities, the evolving role of the buy-side in the provision of liquidity, and the impact of regulatory and monetary policy decisions on fixed income markets.”

In its latest market report, IHS Markit highlighted that as much as $4.3 billion is now managed by exchange-traded funds globally.

“The even larger sum allocated to passive fund trackers, is now starting to make waves in the securities lending space,” the report explained.

At the RMA’s Annual Conference On Securities Lending in September, FIS Astec Analytics showed that US fixed income revenue has been the star of the show with regard to securities lending revenue in 2017.

Following a 15-basis point (bps) drop off in 2016, returns on lendable assets for government bonds rebounded in July to the 2015 highs of 25 bps, an FIS spokesperson stated.

At the same time, FIS revealed that the government bond intrinsic loan rate has seen an almost unbroken growth run since January 2014, to sit at just over 0.2 percent, as of July 2017.

Strong revenue in the fixed income space during the first two quarters of 2017 served as a safety net to industry participants that suffered from a significant fall in equities revenue, compared to the opening months of 2016.

Speakers noted that, as the US entered a bull market, the returns of rising interest rates could stall the impressive growth of demand for government bonds.

Panellists partly attributed the success of government bonds to the rising demand for high-quality liquid assets driven by new margin requirements that came into effect in March and September.

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