US Fixed Income Markets
* * The Opacity Crisis * *
Recommendations for additional regulation of the fixed income markets:
• Expand the TRACE trade reporting system to incorporate all cash fixed income securities
TRACE has made an outstanding contribution to increasing price discovery in the corporate bond market.
This price dissemination system should be expanded to included all cash fixed income securities traded
OTC or on an exchange. Securities to incorporate include Treasuries, MBS, repo, agencies, structured
finance products and money market instruments.
• Open source the CUSIP nomenclature system
The CUSIP system should be made into an open source system. This will be the foundation for the
development of a vast body of information and disclosure for fixed income securities.
• Expand “equivalent disclosure” to all asset classes rated by NRSROs
All issuers of securities rated by Nationally Recognized Statistical Rating Organizations should be
required to share non-public information with all NRSROs not just those compensated to rate the issue.
For example, Lehman Brothers and AIG, should have provided non-public information to all NRSROs
rather than the few they compensated. The SEC should examine whether Lehman and AIG were “ratings
shopping” leading up to their failures.
• Require public entities to maintain a public XBRL file detailing their outstanding securities
and where these are traded (exchange, ATS or OTC)
All entities issuing public securities should file detailed disclosure with the SEC outlining all
securities outstanding and the exchanges, ATS, ECN or OTC markets on which the filing company has
securities. This would give market participants the information to assess the full capital structure and risk
profile of the issuing entity. With this level of disclosure it would be possible to assess the liquidity of an
issuers securities. This would provide critical information to market participants.
• Create a facility for retail investors to purchase Treasury securities on a daily basis
The Treasury Department, through the Federal Reserve, should make Treasury securities available for
sale and purchase on basis to retail investors similar to their sales to primary dealers. The Bonds platform
at the New York Stock Exchange could be utilized.
• Develop more more oversight and transparency for all trading venues (ATS, OTC, crossing
The SEC should require more disclosure of the various alternative trading systems, over-the-counter
liquidity platforms and crossing networks. Access to these platforms should be made more universal.
Trading venues should publish liquidity statistics for securities traded.
• Require all cash and derivative products to trade and clear through central utilities
An integrated multilateral trading and clearing modelwill offer the best route to improved risk
management and enhanced efficiency for all participants in the credit derivatives market and also for the
underlying companies on which credit derivatives are based.
Additionally this will offer regulators the immediate information and transparencythey need to prevent
fraud, manipulation and market abuse.
These central utilities will greatly reduce significant information asymmetries in the credit markets and
protect the broader financial markets against systemic risk.
• Repeal the Tower Amendment to improve municipal disclosure
A recent study says about 25% of municipal issuers are chronically delinquent in filing their disclosure
documents. The Congress should consider means of enhancing disclosure. Information flow is vital for
healthy markets and the protection of investors.
Woman in Housing and Finance
October 14th, 2008