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The U.S. Securities and Exchange Commission has given bond brokers three months to amend the 50-year-old rule, which is set to take effect next week, following changes to banks, asset managers and trade lobbies. Large parts of the market can shut down business.
Bond bankers and trading platforms have risen in recent weeks to gain momentum with SEC Rule 15c2-11, first introduced in 1971. To check if there was an array of financial information up to date to quote the stock price for each company.
The rule has never explicitly exempted bond trading, but in practice has never been applied to a fixed-income market. Many traders – even some SEC commissioners – believed that it was only about the stock market.
The information they were verifying was also publicly available to investors to ensure dealers amended the SEC regulations last year.
The change, under then-SEC chairman J. Clayton, raises questions from lawyers and bank compliance departments about whether the rule applies to fixed-income securities, such as corporate bonds, in the absence of clear exemptions for anything other than municipal bonds.
Trade associations say the SEC, under the new leadership of Gary Gensler, earlier this year confirmed that the rule would apply to the bond market, a crazy dash to apply for a waiver or, in a very short time, to comply more.
The SEC said late on Friday that it would start enforcing the rules from January, applying to fixed-income markets instead of September 28th.
Bond dealers are concerned that most of the information that public listed companies have to disclose in the capital market is not available to private companies that only issue bonds.
In recent weeks, there have been fears that without discounts or increases, transactions in large parts of the bond market বিশেষ especially low-quality, private company bonds could be drastically reduced. Some dealers argued that they should stop publishing quotes extensively on their securities trading platforms and instead return to methods like phone broking so as not to go beyond the rules.
Commissioner Hester Pierce, who joined the SEC in 2018 and was involved in passing the amendment, said the extension was “completely inadequate”, adding that he only believed the rule if it applied to stocks.
“I should have requested a larger application of the rule,” Pierce said in a statement Friday. “However, my failure to do so, the Commission’s failure to address the issue for public consideration, and the market participants’ failure to identify the issue during the rule-making process, is not our current reason to go robotically and apply the rule to specific income markets without proper discussion.”