| Bonds Online |
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| 5/10/2013Market Performance |
| Municipal Bonds |
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S&P National Bond Index
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3.00% |
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S&P California Bond Index
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2.96% |
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S&P New York Bond Index
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3.13% |
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S&P National 0-5 Year Municipal Bond Index
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0.70% |
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| S&P/BGCantor US Treasury Bond |
400.09 |
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| Income Equities: |
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| Preferred Stocks |
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S&P U.S. Preferred Stock Index
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848.03 |
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S&P U.S. Preferred Stock Index (CAD)
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636.26 |
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S&P U.S. Preferred Stock Index (TR)
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1,701.05 |
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S&P U.S. Preferred Stock Index (TR) (CAD)
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1,276.26 |
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| REITs |
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S&P REIT Index
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174.07 |
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S&P REIT Index (TR)
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425.30 |
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| MLPs |
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S&P MLP Index
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2,469.58 |
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S&P MLP Index (TR)
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5,428.50 |
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See Data
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Finra’s Trace to Add Agencies, New Company Bonds |
By David Scheer and Jody Shenn
Sept. 29 (Bloomberg) -- Securities firms must begin publicly disclosing trading data in March for debt of government-sponsored enterprises such as Fannie Mae and Freddie Mac and for new issues of corporate debt, the U.S. brokerage industry’s main regulator said.
The Financial Industry Regulatory Authority won government approval for the proposal it announced this March, expanding the Trade Compliance and Reporting Engine, it said in a statement. The regulator is “actively” considering whether to seek permission to add other debt, Steven Joachim, Finra’s executive vice president for transparency services, said in an interview.
While short of the broadening of Trace to asset-backed securities that the Obama administration said should be considered in the wake of the debt-market crisis in its June outline for financial overhaul, more than $2.7 trillion of so- called agency debt will be added. The database now reports trade volumes and prices for only corporate bonds in the secondary market.
“This expansion should help all investors, and especially retail investors, to better monitor their executions by putting immediate and accurate sales and pricing information in their hands,” Finra’s chief executive officer, Richard Ketchum, said in the statement. “There is a demonstrated need for increased bond market information, particularly as we move forward from financial crisis.”
Objections From Bankers
The Securities and Exchange Commission approved Finra’s proposal yesterday. Bankers represented by the Securities Industry and Financial Markets Association and Regional Bond Dealers Association had objected to the move in comment letters, saying it would impair liquidity and is unnecessary because prices are already easy to find in the agency debt market.
The step won’t expand Trace to include illiquid asset- backed securities, as also suggested by former SEC Chairman Arthur Levitt. Mortgage-backed bonds guaranteed by Fannie Mae, Freddie Mac or federal agency Ginnie Mae, among the world’s most-liquid debt securities, also are still excluded. The agency issues to be included are the direct, unsecured obligations of such government-related entities.
Trace was started in July 2002, giving anyone with an Internet connection access to trading details, and was fully phased in by February 2005. The system offers trading data, including statistics such as the most active bonds, volume, advances, declines and new highs and lows.
“We are actively looking at other markets and we fundamentally believe that transparency is a good thing for markets overall,” Joachim said today. “We do want to proceed with caution,” he added, “but we are studying and looking at other markets as we speak.”
Looking at ‘Fungibility’
One consideration for whether Trace makes sense for a certain market is whether there’s a “fungiblity of assets” in it, meaning “the price of one is a good basis for the price of another,” he said. “For portions of the market that are illiquid and where things like credit ratings have not been as consistent, there’s a question of whether the prices would fungible enough.”
The latest expansion will add about 25,000 bonds to the approximately 30,000 now tracked, Finra said when announcing the proposal earlier this year. It includes “debt issued by federal government agencies, government corporations and government sponsored enterprises,” and data on sales of new corporate debt to Trace, it said.
Other Affected Debt
Washington-based Fannie and McLean, Virginia-based Freddie are government-chartered mortgage-finance companies that were placed under U.S. control in September. Agency debt affected would also include notes sold by the Federal Agricultural Mortgage Corp., Federal Home Loan Bank system and Tennessee Valley Authority.
The bid-ask spread on investment-grade corporate bonds was about seven basis points before Trace and about four basis points immediately after, according to a study by Kumar Venkataraman, an associate finance professor at Southern Methodist University’s Cox School of Business in Dallas, published in the Journal of Financial Economics.
Bid-ask spreads represent the difference between what investors can buy or sell the same securities for; the larger the gap, the more the securities firms in the middle may make.
Credit-market turmoil caused that gap to balloon. The spread now averages about 15 basis points on more than 2,500 investment-grade bonds sold over the past decade, excluding securities with spreads of 100 basis points or more, composite pricing data compiled by Bloomberg show.
A basis point is 0.01 percentage point.
Rejecting Bankers’ Objections
Finra’s Joachim said in the interview that he doesn’t believe bankers’ complaints that Trace has made it harder to trade securities in the corporate-bond market, by making brokers reluctant to hold inventories of debt.
“We’ve looked at it carefully over the last seven years, and we’ve seen no negative impacts to liquidity,” he said.
While some individuals on Wall Street complained that TRACE contributed to difficulty trading bonds after the collapse of Lehman Brothers Holdings Inc. last September roiled markets, Joachim said data provided to Finra showed a “dramatic difference” in the declines in volumes among corporate notes with prices on Trace and those that aren’t -- debt issued to institutional investors under so-called 144A placements.
For the investment-grade market, volumes in the former category fell 6 percent last year, versus a 35 percent drop in the latter, according to Finra.
Also of “heightened importance” with a flood of money moving into bond funds as the economy shows signs of recovery, Joachim added, has been the way in which different mutual funds have become more likely to mark their corporate bonds at the same values after Trace, he said, citing a 2008 study by College of William and Mary researchers that found that result.
To contact the reporters on this story: Jody Shenn in New York at jshenn@bloomberg.net; David Scheer in New York at dscheer@bloomberg.net
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