The U.S. financial industry’s internal regulator began a new data-tracking program designed to bring more transparency to a corner of the bond market known for opacity, but Wall Street isn’t sold.
Dealers are now required to report within 45 minutes of executing trades of asset-backed bonds. Those securities bundle pools of debt on almost anything with a cash stream, including money owed on car loans, credit cards, student debt, heavy equipment and transportation equipment leases. Similar securities backed by mortgages were blamed for contributing to the financial crisis.
Wall Street firms have resisted the proposal and others like it for several years, including those for certain mortgage securities and corporate bonds that have taken effect. They have said the initiatives have hurt these securities’ liquidity.
The criticism persisted on Monday.
“Will broker/dealers be willing to provide the same level of liquidity as they do currently when the market price of their positions will be more readily broadcast to the market,” asked Bank of America Corp. strategists led by Chris Flanagan in a Monday report. “While this sounds good in theory, this transparency could have myriad effects on the market.”
The regulator, the Financial Industry Regulatory Authority, wants to arm retail and institutional investors with more information by tracking transactional data on all deals, including private ones, according to a Monday statement. The U.S. Securities and Exchange Commission led by Mary Jo White also has taken interest in transparency initiatives for the bond markets.
Finra is considering tracking pricing, volume and timing data on other kinds of securitized products, such as commercial mortgage-backed securities and certain derivatives of mortgage bonds.
In a comment letter dated April 13, the Securities Industry & Financial Markets Association asked that Finra reduce the proposed transaction size threshold on its latest proposal. The trade group wants reporting limited to deals of less than $100,000, a 10th of the $10 million cap in effect on Monday. The trade group also asked Finra not to require last price and last trade data.
Almost $3.5 billion across 400 trades take place per day in the asset-backed market, according to the Finra statement.
Michael Nicholas, chief executive officer of the Bond Dealers of America, said in an April 9 comment letter that the “current regulatory environment is creating uneven burdens” to smaller dealers, given their more limited resources compared to the largest banks.
Information will be available online through the organization’s Trade Reporting and Compliance Engine service, known as Trace.
“It will be interesting to see how the markets react to these new levels of disclosures and if liquidity and trading volumes are at all impacted,” Brean Capital’s fixed-income strategy head Scott Buchta said in a Monday morning e-mail to clients.