In something of an understatement, Tom Gira, Finra’s executive vice president for market regulation and transparency services, noted that “it doesn’t seem that we have the commenters’ support here that would usually carry us forward on an important policy initiative.” He said the regulator would study the market swings of the past few months to further inform its views of balancing bond-trading transparency and liquidity.
This is a thorny topic. On the one hand, fixed-income giants like BlackRock Inc. and Pacific Investment Management Co. clearly stood to gain more than smaller competitors from the plan, which would have given bond traders 48 hours to disclose block trades of more than $10 million in investment-grade bonds and more than $5 million in high-yield, instead of the current 15 minutes. As it stands, brokers might hesitate to make such large trades because others in the market will quickly know exactly how much changed hands and at what price.
Yet few investors would say the system is flawless. The huge fluctuations in exchange-traded funds tracking investment-grade and high-yield bonds during the worst of March’s market tumult suggest there was little ability to trade large amounts of actual securities when needed. Finra’s pilot program probably wasn’t perfectly designed, and it could have made things weird for a short time, but it might have been worth it to bring empirical evidence to the debate about debt-market liquidity. Instead, traders are left with the same set of information as before.
Obviously, it’s not worth messing with the bond markets “just because.” Thanks in no small part to the Federal Reserve’s recent interventions, they’re functioning about as smoothly as ever. But these two topics are critical and have nagged investors for years. That there’s still no clear path forward makes it seem as if these problems have no solution.
Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.