The SEC Is Taking a Hard Look at Fixed Income Markets

On March 28, 2013, the SEC announced the agenda and potential topics for discussion at its April 16 Fixed Income Markets Roundtable. The roundtable will focus on the transparency and efficiency of fixed income markets and will be divided into four panels. The first two panels will examine the current market structure for municipal securities and corporate bonds, and the last two panels will discuss potential improvements to the market structure for municipal securities, corporate bonds and asset-backed securities. The SEC’s list of possible agenda items for the panels makes it clear that the SEC is taking a hard look at the structure of the fixed income markets. Please see below a few discussion points related to corporate bonds that the SEC is interested in:

• How large is the corporate bond market? How diverse is the universe of corporate bond issuers and products? How large is the institutional investor presence? If a retail customer wishes to buy or sell a corporate bond, how would the transaction typically be handled by the customer’s broker? Does the process for buying and selling a corporate bond differ for an institutional investor?

• Does trading in corporate bonds differ depending on whether the bonds were sold in offerings registered under the Securities Act or in private offerings, including Rule 144A eligible offerings? Do different types of corporate bonds (e.g., plain vanilla, convertible bonds, structured debt) trade differently? Do investment grade bonds trade differently from non-investment grade bonds?

• What are the liquidity characteristics of the corporate bond market? Do some types of corporate bonds tend to be more liquid than others? If so, which ones and why?

• Are transaction costs for certain types of convertible bonds (e.g., convertible bonds, high-yield bonds) materially different from other corporate bonds?

• Does the primary offering process differ depending on whether it is registered under the Securities Act or made in reliance on an exemption from registration, including Rule 144A eligible offerings? Does it differ based on the type of debt being offered? What are the significant trends in the primary market for corporate bonds? What are the trends in private debt and how do they affect the public debt markets? Are there concerns about the availability of corporate bonds in primary offerings?

• Does the pricing of primary offerings or do prices in the secondary market differ depending on whether the bonds were sold in registered offerings or in exempt offerings, including Rule 144A eligible offerings? Does pricing differ depending on the type of purchaser for the corporate bonds?

• Are there ways to improve the availability or timing of information on the corporate bond issuer that is made available to investors? Are there ways to improve the pricing of corporate bonds in primary offerings?

The SEC expects that the information provided in connection with this roundtable may influence the SEC’s decision to engage, or not engage, in rulemaking in this area.

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