Let that sink in for a moment. A trillion-dollar investment firm is concerned about “have-nots.” T. Rowe either believes that a two-tier system would be bad for the corporate-bond market as a whole or that it would be at risk of becoming a “have-not” itself.

Still, the biggest dagger to the heart of the pilot program might have been from Vanguard Group Inc. and its $5.6 trillion in assets under management. “The Proposed Pilot is a harmful solution to an unsubstantiated problem,” the letter signed by Chief Investment Officer Gregory Davis said. “We routinely trade corporate bond blocks much larger than the current dissemination caps and... have observed that liquidity for corporate bond block trades has generally improved over time.”

Citadel LLC and AQR Capital Management also voiced opposition. Citadel faulted some members of the SEC’s advisory committed for simply asserting that bond trading would improve despite “little evidence to suggest that the Proposed Pilot will meaningfully improve liquidity conditions.” That’s similar to how AQR put it:

While we are strong supporters of making policy decisions based on the type of data-driven analysis afforded by pilot programs, the reality is that all pilots are disruptive to the workflow of market participants and thus have inherent costs. In order to justify imposing such costs on the marketplace as a whole there should be clear evidence that the changes being tested have at least a reasonable likelihood of achieving the desired outcome. We do not believe that the Proposed Pilot meets this basic standard.

Of course, this argument presents something of a Catch-22. The reason there’s no evidence that delayed disclosure of large corporate-bond trades improves overall liquidity is because it hasn’t been tested. And without trying it out, there will never be the empirical data needed to get a program like this off the ground.

For this reason, I’m not sure I’d entirely rule out the possibility of some sort of corporate-bond experiment, even if the details aren’t quite the same as the earlier proposal. A person familiar with the matter told Bain that Finra could still make changes and go forward after consulting with the SEC.

Overall, though, the comment letters reveal real concern — and borderline fear — about what might happen to the bond market if big investment managers are afforded even more power when they’re already gobbling up ever-larger shares of just about every asset class. One firm even went so far as to say that hiding block trades creates “the potential for many victims.” That alone should be enough to give Finra pause.

This article was provided by Bloomberg News.

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