By Karey Wutkowski
WASHINGTON, March 9 (Reuters) - The Financial Industry Regulatory Authority proposed measures to increase transparency and pricing information in the government-related debt market in an effort to improve market confidence and boost trading.
FINRA, the self-regulatory organization for the securities industry, said Monday it plans to add debt issued by federal government agencies, government corporations and government sponsored enterprises to its reporting system that produces real-time pricing and trade volume information.
The agency's Trade Compliance and Reporting Engine (TRACE) currently only reports that information on corporate bonds trading in the secondary market.
The proposal, if approved by the U.S. Securities and Exchange Commission, would expand the reporting to include debt issued by Fannie Mae (FNM.N), Freddie Mac (FRE.N), the Federal Home Loan Banks, and other bodies associated with the U.S. government.
It would also include data on primary market transactions in new issues.
"We believe that transparency is an extremely important ingredient for investor participation in a market," FINRA Executive Vice President Steven Joachim said in a statement.
"Based on our experience with corporate bonds, this expansion should help all investors -- especially retail investors -- get better prices, because TRACE has shown that transparency helps to reduce bid-ask spreads."
The bond industry has already tried to improve the market for securitized assets by collaborating on a valuation project that would give better pricing information for those assets.
Industry groups, including the Securities Industry and Financial Markets Association in New York, said late last year that they hoped such a project would better define values of the illiquid securities and boost confidence in their markets.
Fannie Mae, Freddie Mac and Federal Home Loan Bank system debt is already seen as some of the most liquid, having in the late 1990s been pitched as a strong alternative for U.S. Treasuries when government bond volume dwindled. Its standard features allow it to trade as a "rates" product, giving it greater liquidity than corporate bonds.
But liquidity in Fannie Mae, Freddie Mac and Federal Home Loan debt has been compromised since the thick of the credit crisis hit in mid-2008, as investors have become uncertain over the level of government commitment to debt in the $3 trillion agency debt market. Foreign buyers, including central banks, have sharply reduced holdings, forcing higher relative rates as the companies issue new securities.
Risk premiums have been more than halved since November, however, as the Federal Reserve agreed to buy up to $100 billion in the bonds as part of its bid to help stabilize mortgage markets. Federal buying has also dampened concerns fostered by the government's refusal to fully guarantee the bonds.
Under FINRA's proposal, about 25,000 government agency, corporation and GSE bonds would become TRACE-eligible, meaning investors could access real-time, public dissemination of transaction and price data for all the trades involving those bonds.
FINRA said it expects the SEC to seek public comment on the proposal "in the near future." The SEC would then have to vote to approve the proposal. (Reporting by Karey Wutkowski, additional reporting by Al Yoon in New York, editing by Gerald E. McCormick)
