[House Report 106-149]
[From the U.S. Government Publishing Office]
106th Congress Report
HOUSE OF REPRESENTATIVES
1st Session 106-149
======================================================================
BOND PRICE COMPETITION IMPROVEMENT ACT OF 1999
_______
May 18, 1999.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Mr. Bliley, from the Committee on Commerce, submitted the following
R E P O R T
together with
ADDITIONAL VIEWS
[To accompany H.R. 1400]
[Including cost estimate of the Congressional Budget Office]
The Committee on Commerce, to whom was referred the bill
(H.R. 1400) to amend the Securities Exchange Act of 1934 to
improve collection and dissemination of information concerning
bond prices and to improve price competition in bond markets,
and for other purposes, having considered the same, report
favorably thereon without amendment and recommend that the bill
do pass.
CONTENTS
Page
Purpose and Summary.............................................. 2
Background and Need for Legislation.............................. 2
Hearings......................................................... 3
Committee Consideration.......................................... 4
Roll Call Votes.................................................. 4
Committee Oversight Findings..................................... 4
Committee on Government Reform Oversight Findings................ 5
New Budget Authority, Entitlement Authority, and Tax Expenditures 5
Committee Cost Estimate.......................................... 5
Congressional Budget Office Estimate............................. 5
Federal Mandates Statement....................................... 6
Advisory Committee Statement..................................... 6
Constitutional Authority Statement............................... 6
Applicability to Legislative Branch.............................. 6
Section-by-Section Analysis of the Legislation................... 7
Changes in Existing Law Made by the Bill, as Reported............ 8
Additional Views................................................. 11
Purpose and Summary
The purpose of H.R. 1400, the Bond Price Competition
Improvement Act of 1999, is to facilitate best execution of
customer orders in the secondary market for debt securities by
providing for improved price transparency of debt securities
through last sale reporting and improved price competition in
bond markets. Improved transparency will enable customers to
better assess the quality of executions obtained for bond
transactions. It also will encourage competition among dealers
in bonds which will narrow the spreads charged to investors.
These investors, in turn, will realize greater returns on their
investments.
Background and Need for Legislation
On September 29, 1998, the Subcommittee on Finance and
Hazardous Materials held a hearing on competition in mutual
fund fees and in bond prices. In that hearing, the Subcommittee
heard testimony that transparency of corporate bond prices was
poor. Specifically, testimony indicated that instances exist in
which similarly situated investors purchasing the same
quantities of the same bond from the same dealer pay
substantially different prices for the bonds. Testimony also
indicated that improved transparency would lead to improved
bond prices for investors, and that increased transparency
would assist the relevant regulators with development of an
audit trail.
The U.S. equity markets have been the subject of
substantial attention of both the regulators and Congress.
Stock trades on the New York Stock Exchange or the NASDAQ stock
market are subject to immediate real time reporting of price
and quantity. Investors know immediately what other investors
are paying for the same security. That information is
widelydisseminated through electronic and print media and is
increasingly available to individual investors at little or no cost.
The level of oversight and transparency in the bond market,
particularly the corporate and municipal market, is substantially less
than that in the U.S. equity markets. In the corporate and municipal
market, dealers do not report the prices at which they sell bonds. This
lack of ``last sale reporting'' makes it difficult for investors to
determine if they are paying the best price for a bond. It also makes
it difficult for them to value their portfolios with precision.
The corporate bond market is dominated by five or six major
bond dealers. Each of these dealers serves as the lead
underwriter on a large number of corporate bond offerings each
year. The dealer typically keeps an inventory of the bonds that
it underwriters and makes a market for trading in the bond
after its initial offering. A single dealer will often be the
principal, if not the exclusive, source for investors wishing
to buy or sell a particular bond in the secondary market. As a
result, investors cannot comparison shop among dealers.
Investors need greater price transparency so they can compare
trade prices to other investors in order to monitor the quality
of execution provided by the dealer.
The undesirable consequences of the existing structure
probably were best expressed in the following testimony by
Larry E. Fondren, President, InterVest Financial Services,
Inc., before the Subcommittee on Finance and Hazardous
Materials on June 18, 1998:
[T]he lack of price transparency in that [bond]
market forces investors and most broker-dealers to
gauge the current level of market pricing by calling a
number of dealers to solicit quotes before executing a
singe transaction--at what can only be hoped is the
best available price. This inefficient process limits
the number of potential counter-parties with which a
participant can trade, and constricts the ability of
participants to confidently discern current pricing
levels. As a result, liquidity is hindered and broad
competition among broker-dealers is thwarted. The
largest source of capital formation in the world is the
issuance and sale of bonds. Unlike stocks which are
sold directly to investors, the non-transparent,
inefficient structure of the current bond market
requires issuers to sell their bonds to a relatively
small group of dealers which buy from the issuers, as
principals, and subsequently sell to investors at
undisclosed prices. As issuers have no effective means
of discerning the prices at which existing bonds are
trading, a key benchmark for determining the price at
which their new bonds should be sold, they are unable
to accurately assess the fairness of the dealer bids
they receive--resulting in lower selling prices and
higher capital costs.
Therefore, the Committee has determined, on the basis of
the compelling record before it, that transparency in the bond
market should be improved to better resemble that of the U.S.
equity markets. The Committee believes that this improved
transparency will facilitate price competition, better inform
investors, and assist regulators in their oversight of the
markets.
The Committee notes that a number of initiatives to improve
transparency in the bond market have been undertaken since the
beginning of Committee hearings in this area. The Committee
compliments the groups that have taken the lead in these
important initial steps towards improved price transparency.
Hearings
On June 18, 1998, the Subcommittee on Finance and Hazardous
Materials held a hearing on electronic commerce. One of the
witnesses, Mr. Larry E. Fondren, President, InterVest Financial
Services, Inc., testified about the lack of price transparency
in the bond markets and the negative consequences for issuers,
investors, and the markets.
On September 29, 1998, the Subcommittee on Finance and
Hazardous Materials held a hearing on competition in mutual
fund fees and bond prices. Witnesses at that hearing included
The Honorable Arthur Levitt, Chairman of the Securities and
Exchange Commission, accompanied by Mr. Barry P. Barbash,
Director, Division of Investment Management and Mr. Richard R.
Lindsey, Director, Division of Market Regulation, Securities
and Exchange Commission; Mr. Charles A. Trzcinka, Professor of
Finance, University of Buffalo, State University of New York,
Jacobs Management Center; Mr. Harold Evensky, Certified
Financial Planner, Evensky, Brown, Katz, & Levitt; Mr. Thomas
Gardner, Co-Founder, The Motley Fool, Inc.; Mr. F. William
McNabb, III, Managing Director, The Vanguard Group; Mr. A.
Michael Lipper, Chairman, Lipper Analytical Services; Mr.
Matthew P. Fink, President, ICI; Mr. Kenneth E. Volpert,
Principal and Senior Portfolio Manager, The Vanguard Group; Mr.
William H. James, Senior Vice President, Lazard Freres and
Company on behalf of The Bond Market Association; Mr. Suresh M.
Sundaresan, Professor, Columbia University School of Business;
Mr. J. Patrick Campbell, Chief Operating Officer, The Nasdaq
Stock Market, Inc.; Mr. Geoffrey Rosenberger, Managing
Director, Clover Capital Management; and Mr. Frank R. Hoadley,
Capital Finance Director, State of Wisconsin, Department of
Administration. At that hearing, the Subcommittee heard
testimony that transparency of corporate bond prices was poor.
Testimony indicated that individual purchasers of the same bond
from the same dealer were given prices that varied by as much
as six percent. Testimony also indicated that improved
transparency would lead to improved bond prices for investors.
On March 18, 1999, the Subcommittee on Finance and
Hazardous Materials held a hearing to consider the Committee
draft language of H.R. 1400, the Bond Price Competition
Improvement Act of 1999. The Subcommittee heard testimony from
The Honorable Arthur Levitt, Chairman of the Securities and
Exchange Commission, accompanied by Mr. Robert L. D. Colby,
Deputy Director, Division of Market Regulation, Securities and
Exchange Commission; Mr. J. Patrick Campbell, Chief Operating
Officer and Executive Vice President, The Nasdaq Stock Market,
Inc.; and Mr. Micah S. Green, Executive Vice President, The
Bond Market Association. The testimony indicated that the
legislation would facilitate more transparent markets for
secondary trading of debt securities.
Committee Consideration
On April 15, 1999, the Subcommittee on Finance and
Hazardous Materials met in open markup session and approved
H.R. 1400 for Full Committee consideration, without amendment,
by a voice vote. On April 21, 1999, the Full Committee met in
open markup session and ordered H.R. 1400 reported to the
House, without amendment, by a voice vote, a quorum being
present.
Rollcall Votes
Clause 3(b) of rule XIII of the Rules of the House requires
the Committee to list the recorded votes on the motion to
report legislation and amendments thereto. There were no
recorded votes taken in connection with ordering H.R. 1400
reported. A motion by Mr. Bliley to order H.R. 1400 reported to
the House, without amendment, was agreed to by a voice vote, a
quorum being present.
Committee Oversight Findings
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the Committee held legislative and
oversight hearings and made findings that are reflected in this
report.
Committee on Government Reform Oversight Findings
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, no oversight findings have been
submitted to the Committee by the Committee on Government
Reform.
New Budget Authority, Entitlement Authority, and Tax Expenditures
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee finds that H.R.
1400, the Bond Price Competition Improvement Act of 1999, would
result in no new or increased budget authority, entitlement
authority, or tax expenditures or revenues.
Committee Cost Estimate
The Committee adopts as its own the cost estimate prepared
by the Director of the Congressional Budget Office pursuant to
section 402 of the Congressional Budget Act of 1974.
Congressional Budget Office Estimate
Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives, the following is the cost estimate
provided by the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, April 30, 1999.
Hon. Tom Bliley,
Chairman, Committee on Commerce,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 1400, The Bond
Price Competition Improvement Act of 1999.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Mark Hadley
(for federal costs) and Jean Wooster (for the private-sector
impact).
Sincerely,
Barry B. Anderson
(For Dan L. Crippen, Director).
Enclosure.
H.R. 1400.--Bond Price Competition Improvement Act of 1999
CBO estimates that implementation H.R. 1400 would have no
significant effect on the federal budget. The bill would
require the SEC to adopt rules to assure that information about
transactions involving certain debt securities is made
available to the public on a timely basis. Such information
would include price, volume, and yield. In addition, the bill
would require GAO to conduct study of measures needed to
improve information about transactions involving municipal
securities and debt securities that are exempt the new SEC
rules. Assuming availability of appropriated funds, we estimate
the Securities and Exchange Commission (SEC) and the General
Accounting Office (GAO) would spend less than $500,000 to
implement the bill. H.R. 1400 would not affect direct spending
or receipts; therefore, pay-as-you-go procedures would not
apply.
H.R. 1400 contains no intergovernmental mandates as defined
in the Unfunded Mandates Reform Act (UMRA) and would not affect
the budgets of state, local, or tribal governments.
H.R. 1400 would impose a private-sector mandate, as defined
by the UMRA, on the National Association of Securities Dealers
(NASD). The NASD is a self-regulatory organization that issues
rules governing practices by broker-dealer firms in the over-
the-counter market. CBO estimates that the cost of the mandate
would not exceed the threshold established by UMRA ($100
million in 1996, adjusted for inflation).
This bill would require that the NASD broaden its current
initiative to improve the transparency of the corporate bond
market to include securities issued by government-sponsored
enterprises (GSEs) and certain international financial
organizations. Transparency in securities markets is the extent
to which timely data on prices and transactions is visible and
understandable to all market participants. Under this bill, the
SEC would require that the NASD collect, process, distribute,
and publish information (such as price, volume, and yield)
about the purchase or sale of those securities. Based on
information from the SEC and NASD, CBO estimates that the cost
of this mandate would be well below the private-sector
threshold.
The CBO staff contacts are mark Hadley (for federal costs)
and Jean Wooster (for the private-sector impact). This estimate
was approved by Robert A. Sunshine, Deputy Assistant Director
for Budget Analysis.
Federal Mandates Statement
The Committee adopts as its own the estimate of Federal
mandates prepared by the Director of the Congressional Budget
Office pursuant to section 423 of the Unfunded Mandates Reform
Act.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Constitutional Authority Statement
Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee finds that the
Constitutional authority for this legislation is provided in
Article I, section 8, clause 3, which grants Congress the power
to regulate commerce with foreign nations, among the several
States, and with the Indian tribes.
Applicability to Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of section
102(b)(3) of the Congressional Accountability Act.
Section-by-Section Analysis of the Legislation
Section 1. Short title
Section 1 provides the short title of the legislation, the
``Bond Price Competition Improvement Act of 1999.''
Section 2. Extension of transaction reporting to debt securities
Section 2 directs the Securities and Exchange Commission
(SEC or the Commission) to use its existing authority under
Section 11A of the Securities Exchange Act of 1934 (the
Exchange Act) to adopt rules to assure the prompt, accurate,
reliable, and fair collection, processing, distribution, and
publication of transaction information, including last sale
data, with respect to covered debt securities, so that such
information is made available to the public.
In determining the rules and other actions to be taken
pursuant to this legislation, the Commission shall take into
consideration, among other factors, private sector systems for
the collection and distribution of transaction information on
corporate debt securities. The SEC should consider not only the
type of information reported by private sector systems, but
also the mode and method of collection and dissemination used
by private sector entities.
Additionally, in making its public interest determination,
the Commission is required to consider whether the action will
promote efficiency, competition, and capital formation. The
Committee expects the Commission to conduct appropriate cost-
benefit analysis of the proposed rules to the extent feasible
given available data and the time limits imposed by the Act.
The Committee intends that pricing information for debt
securities be made available to the investing public so that
the bond market enjoys the benefits of transparency enjoyed in
the equity market.
The section further provides that the subsection does not
limit or alter Commission authority under other provisions of
the Exchange Act. It also provides for definitions of relevant
terms and for completion of required actions within one year of
the enactment of the Act. Government securities, municipal
securities, and other ``exempted securities'' as defined in
section 3(a)(12) of the Exchange Act are excepted from the
requirements of this legislation, as are any securities that
the Commission determines by rule to except from these
requirements.
Section 3. Technical amendment
Section 3 makes technical changes to the definition of
exempt securities. These changes are intended to require
dealers to make prices available for debt securities issued by
government sponsored enterprises. These changes are intended to
affect only debt securities. These changes are not intended to
affect the exemption from registration requirements enjoyed by
securities issued by government sponsored enterprises or to
impose any requirements on government sponsored enterprises.
Section 4. Studies
Section 4 requires the Comptroller General to conduct a
study of transparency in transactions in municipal securities
and in debt securities as to which transaction information is
collected but not disseminated pursuant to section 11A(d) of
the Exchange Act.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
SECURITIES EXCHANGE ACT OF 1934
* * * * * * *
TITLE I--REGULATION OF SECURITIES EXCHANGES
* * * * * * *
definitions and application of title
Sec. 3. (a) When used in this title, unless the context
otherwise requires--
(1) * * *
* * * * * * *
(12)(A) * * *
(B)(i) Notwithstanding subparagraph (A)(i) of this
paragraph, government securities shall not be deemed to
be ``exempted securities'' for the purposes of section
17A of this title.
(ii) Notwithstanding subparagraph (A)(ii) of this
paragraph, municipal securities shall not be deemed to
be ``exempted securities'' for the purposes of sections
15 and 17A of this title.
(ii) Notwithstanding subparagraph (A)(i) of this
paragraph, securities described in subparagraphs (B)
and (C) of paragraph (42) of this subsection shall not
be deemed to be exempted securities for purposes of
section 11A of this title.
* * * * * * *
national market system for securities; securities information
processors
Sec. 11A. (a)(1) * * *
* * * * * * *
(3) The Commission is authorized in furtherance of the
directive in paragraph (2) of this subsection--
(A) to create one or more advisory committees
pursuant to the Federal Advisory Committee Act [(which
shall be in addition to the National Market Advisory
Board established pursuant to subsection (d) of this
section)] and to employ one or more outside experts;
* * * * * * *
[(d)(1) Not later than one hundred eighty days after the date
of enactment of the Securities Acts Amendments of 1975, the
Commission shall establish a National Market Advisory Board
(hereinafterin this section referred to as the ``Advisory
Board'') to be composed of fifteen members, not all of whom shall be
from the same geographical area of the United States, appointed by the
Commission for a term specified by the Commission of not less than two
years or more than five years. The Advisory Board shall consist of
persons associated with brokers and dealers (who shall be a majority)
and persons not so associated who are representative of the public and,
to the extent feasible, have knowledge of the securities markets of the
United States.
[(2) It shall be the responsibility of the Advisory Board to
formulate and furnish to the Commission its views on
significant regulatory proposals made by the Commission or any
self-regulatory organization concerning the establishment,
operation, and regulation of the markets for securities in the
United States.
[(3)(A) The Advisory Board shall study and make
recommendations to the Commission as to the steps it finds
appropriate to facilitate the establishment of a national
market system. In so doing, the Advisory Board shall assume the
responsibilities of any advisory committee appointed to advise
the Commission with respect to the national market system which
is in existence at the time of the establishment of the
Advisory Board.
[(B) The Advisory Board shall study the possible need for
modifications of the scheme of self-regulation provided for in
this title so as to adapt it to a national market system,
including the need for the establishment of a new self-
regulatory organization (hereinafter in this section referred
to as a ``National Market Regulatory Board'' or ``Regulatory
Board'') to administer the national market system. In the event
the Advisory Board determines a National Market Regulatory
Board should be established, it shall make recommendations as
to:
[(i) the point in time at which a Regulatory Board
should be established;
[(ii) the composition of a Regulatory Board;
[(iii) the scope of the authority of a Regulatory
Board;
[(iv) the relationship of a Regulatory Board to the
Commission and to existing self-regulatory
organizations; and
[(v) the manner in which a Regulatory Board should be
funded.
The Advisory Board shall report to the Congress, on or before
December 31, 1976, the results of such study and its
recommendations, including such recommendations for legislation
as it deems appropriate.
[(C) In carrying out its responsibilities under this
paragraph, the Advisory Board shall consult with self-
regulatory organizations, brokers, dealers, securities
information processors, issuers, investors, representatives of
Government agencies, and other persons interested or likely to
participate in the establishment, operation, or regulation of
the national market system.]
(d) Minimum Requirements for Transaction Information on Debt
Securities.--
(1) Action Required.--The Commission shall adopt such
rules and take such other actions under this section as
may be necessary or appropriate, having due regard for
the public interest, the protection of investors, and
the maintenance of fair and orderly markets to assure
the prompt, accurate, reliable, and fair collection,
processing, distribution, and publication of
transaction information, including last sale data, with
respect to covered debt securities so that such
information is available to all exchange members,
brokers, dealers, securities information processors,
and all other persons. In determining the rules or
other actions to take under this subsection, the
Commission shall take into consideration, among other
factors, private sector systems for the collection and
distribution of transaction information on corporate
debt securities.
(2) Effect on other authority.--Nothing in this
subsection limits or otherwise alters the Commission's
authority under the other provisions of this section or
any other provision of this title.
(3) Definitions.--For purposes of this subsection:
(A) Covered debt securities.--The term
``covered debt securities'' means bonds,
debentures, or other debt instruments of an
issuer, other than--
(i) exempted securities; and
(ii) securities that the Commission
determines by rule to except from the
requirements of this subsection.
(B) Transaction information.--The term
``transaction information'' means information
concerning such price, volume, and yield
information associated with a transaction
involving the purchase or sale of a covered
debt security as may be prescribed by the
Commission by rule for purposes of this
subsection.
(C) Factors in definitional rules.--In
prescribing rules pursuant to this paragraph,
the Commission shall take into consideration
the extent to which a security is actively
traded, market liquidity, competition, the
protection of investors and the public
interest, and other relevant factors.''.
(b) Conforming Amendment.--Section 11A(a)(3)(A) of such Act
is amended by striking (which shall be in addition to the
National Market Advisory Board established pursuant to
subsection (d) of this section)
* * * * * * *
ADDITIONAL VIEWS
Today's bond markets play a crucial role in our economy.
While New York Stock Exchange equity trading amounts to $28
billion per day, trading volume in all bond markets totals
roughly $350 billion per day. The total value of the bond
market today is over $10 trillion--up approximately 400 percent
since 1980. The debt market is primarily an over-the-counter
principal market, although some debt does trade on the New York
Stock Exchange's Automated Bond System.
The Committee did not begin examining these issues in the
105th Congress. The Bond Price Competition Improvement Act
completes work begun by this Committee 24 years ago.
In 1975, Congress adopted the Securities Amendments which
directed the Securities and Exchange Commission (SEC) to
facilitate the establishment of the National Market System.
Among other things, in fashioning Section 11A of the Exchange
Act, we asked the SEC to assure the availability to brokers,
dealers, and investors of information on quotations for and
transactions in securities. Since then the SEC has pushed for
increased transparency in the equity markets. This has resulted
in the establishment of the consolidated quotation system, the
consolidated transaction tape, and the Intermarket Trading
System, helping to make our securities markets the most
transparent and liquid in the world.
In the 1980s, under the leadership of this Committee's
Subcommittee on Telecommunications and Finance, and its
distinguished chairman Ed Markey, Congress passed landmark
government securities legislation that, in part, addressed the
lack of transparency in that segment of the bond market. In
1991, the industry responded with GovPX, a 24-hour, global
electronic reporting system for U.S. Treasury and other
government securities.
In the fall of 1993, that subcommittee held comprehensive
hearings on the municipal securities market. Chairman Markey
observed at the close of those hearings that: ``I have little
sympathy for those who would keep information about quotes,
trades, prices, and markups in the dark, away from investors.
Markets are more efficient, more fair and more liquid when
investors can readily determine how much a security costs.''
The subcommittee challenged the SEC and the market to respond
to this need, and promised carefully targeted and bipartisan
legislative reforms if they failed to do so.
In 1995, the Municipal Securities Rulemaking Board (MSRB)
started collecting data on dealer-to-dealer transactions in the
municipal bond market as well as disseminating daily summary
reports. In 1998, the MSRB added coverage of customer trades to
this system. I should note that in 1994 the National
Association of Securities Dealers (NASD) established the Fixed
Income Pricing System which covers some but not all high-yield
corporate bonds.
In March 1998, SEC Chairman Arthur Levitt asked the
Division of Market Regulation to begin a review of the U.S.
debt markets. The SEC debt market review concluded that: (1)
the markets for benchmark U.S. Treasury bonds are ``highly''
transparent; (2) the market for other U.S. Treasuries and
Federal agency bonds, that trade in a stable relationship to
benchmark Treasuries, had a ``very good'' level of pricing
information; (3) the markets in mortgage backed securities, and
other structured products such as collateralized mortgage
obligations and asset backed securities, generally have a
``good'' level of price transparency; (4) price discovery is
``necessarily difficult'' in the municipal market--the market
is highly fragmented and regionalized, and is characterized by
an extremely large number of issues and issuers with relatively
small trading volume--but expectations are that the MSRB's
transparency initiatives will result in improvements; (5) the
market in high yield corporate bonds is generally characterized
by a ``relatively poor'' level of price transparency; and (6)
the market in investment grade bonds was said to have a
``fairly good to fair level of price transparency.''
(Memorandum from Richard R. Lindsey, Director of the Division
of Market Regulation to SEC Chairman Arthur Levitt regarding
the Debt Market Review, pp. 2-4.)
In September 1998, SEC Chairman Arthur Levitt, observed
that ``investors have a right to know the prices at which bonds
are being bought and sold [and] that transparency will help
investors make better decisions and will increase confidence in
the fairness of the markets.'' The SEC chairman charged the
NASD with developing a system for dissemination of information
on corporate bond market transactions and prices to investors
and to create a database to enhance surveillance and
enforcement in this market. The NASD is developing a proposal
to gather all trade reports on corporate bonds and make
information available on an immediate basis.
In December 1998, the Bond Market Association announced
that, due to industry concerns about imminent Congressionally-
mandated and SEC-mandated price transparency initiatives, it
was implementing an industry-sponsored, market-based
``voluntary initiative'' to collect price data on investment
grade corporate bonds from interdealer brokers and to
disseminate that data to the public and to market regulators
for surveillance purposes.
Following last summer's electronic commerce hearings, I
wrote to SEC Chairman Levitt and Chairman Oxley supporting
subcommittee hearings and regulatory efforts to address this
problem. Following last fall's hearing on bond price
competition, I wrote to the SEC and the NASD asking for annual
reports through 2003 on their progress in improving the
availability of corporate and other bond price information. The
SEC has undertaken to provide such reports. A copy of the SEC's
letter accompanies these views.
I commend all the ongoing efforts to improve price
transparency in the debt markets. I am pleased to support this
legislation and I would urge all my colleagues to do the same.
It continues this Committee's proud tradition of supporting
full disclosure and the protection of investors, and it will
have significant benefits for the economy.
I also commend Chairman Bliley of the full Committee and
Chairman Oxley of the Finance Subcommittee for their strong
leadership on this legislation. I thank them for working with
Democratic Members, the federal regulators, and the bond
industry to fashion a focused, balanced, bipartisan bill that
is cosponsored by the Democratic Members of the subcommittee
and myself.
John D. Dingell.
Securities and Exchange Commission,
Washington, DC, October 22, 1998.
Hon. John D. Dingell,
Ranking Member, Committee on Commerce, Rayburn House Office Building,
House of Representatives, Washington, DC.
Dear Congressman Dingell: Thank you for your September 29,
1998, letter regarding the corporate debt market hearings
conducted on that day before the Subcommittee on Finance and
Hazardous Materials. I appreciate your interest in the
Commission's corporate debt initiative and your recognition of
our commitment to achieving greater price transparency and
investor protection in the corporate debt market.
I am encouraged by the industry's response to the
Commission's corporate debt initiative. As you observed,
industry support for the initiative included The Bond Market
Association. In moving forward on the proposal, we will work
closely with both the industry and the NASD to implement the
Commission's recommendations. As you have requested, we are
happy to provide an annual progress report on our collaborative
efforts to the Committee in September of each year through
2003.
Thank you again for your interest. Please do not hesitate
to contact me or Richard Lindsey, Director, Division of Market
Regulation, if we can be of further assistance.
Sincerely,
Arthur Levitt, Chairman.