Opacity Crisis

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Proposals made to improve transparency and fairness in the fixed income markets following the 2008 credit crisis

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Opacity Crisis

  1. 1. 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.
  2. 2. • Develop more more oversight and transparency for all trading venues (ATS, OTC, crossing networks) 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 Washington, DC October 14th, 2008 Cate Long Multiple-Markets cate@multiple-markets.com 888-752-0900

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