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U.S. Securities and Exchange Commission

Fixed Income Market Structure Advisory Committee

Preliminary Recommendation for a Pilot Program to Study the Market

Implications of Changing the Reporting Regime for Block-Size Trades in

Corporate Bonds

April 9, 2018

Overview

The Transparency Subcommittee (Subcommittee) of the Fixed Income Market Structure

Advisory Committee (FIMSAC) was formed to consider the impacts of transparency, both pretrade and post-trade, on the corporate and municipal bond markets. The Subcommittee is

charged with reviewing the current transparency regimes for these markets and identifying

methods for analyzing whether they are optimally serving the markets. With respect to posttrade transparency, topics that may be considered include a review of the current reporting and

dissemination framework, its impact on market liquidity and any adjustments that may be

advisable, as well as potential enhancements that may improve the quality and usefulness of the

reported information. 

The Subcommittee has met five times since the inaugural FIMSAC meeting. Minutes of the

Subcommittee’s meetings are available on the SEC website. One of the first issues the

Subcommittee identified was the potential impact of current dissemination protocols for block

trades in corporate bonds. Accordingly, the Subcommittee developed the concept for a pilot to

study an alternative approach that would raise the dissemination caps and modify the

dissemination time frames for trades above the caps. The recommended pilot design supported

by a majority of the Subcommittee is outlined below, followed by discussion of additional

considerations.

The Subcommittee is not making a recommendation at this time for a pilot program for the

reporting and dissemination of block-size trades in municipal securities, but continues to

carefully analyze and discuss the issue.

Recommended Pilot Design

1. Length of Pilot: One year, with an early termination mechanism linked to market quality

indicators.

2. Scope: All trades in TRACE-eligible corporate bonds are eligible for participation in the

pilot.

3. Modifications to Reporting and Dissemination Regime:

A. Dissemination Caps
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i. “10MM+” for trades in investment grade corporate bonds over a 10

million dollar par value. Presently, the dissemination cap for investment

grade corporate bonds is “5MM+”.

ii. “3MM+” for trades in non-investment grade corporate bonds over a 3

million dollar par value. Presently, the dissemination cap for noninvestment grade corporate bonds is “1MM+”.

B. Dissemination Time Frames

i. All trades in sizes at or below their respective dissemination cap will

continue to be disseminated immediately upon receipt, and such

transactions must be reported as soon as practicable, but no later than

within 15 minutes of the time of execution.

ii. All trades above their respective dissemination cap will continue to be

required to be reported as soon as practicable, but no later than within 15

minutes of the time of execution, but they will be disseminated 48 hours

after execution time, or later depending on the time of receipt of the trade

report (i.e., trades reported after hours will be disseminated more than 48

hours after execution time).

C. Dissemination of Uncapped Volumes

For capped transactions, the actual trade size will be made available three months

after the end of the calendar quarter in which they are reported. Presently, the

actual trade sizes of capped trades are made available six months after the end of

the calendar quarter in which they are reported. 

4. Proposed measurement criteria

A. Average daily trading volume of capped and uncapped trades during the pilot

period and compared to the year prior to the pilot, using 1) the prior cap size; 2)

the pilot cap size; and 3) capped and uncapped trades.1 

B. Average daily number of trades of capped and uncapped trades during the pilot

period and compared to the year prior to the pilot, using 1) the prior cap size; 2)

the pilot cap size; and 3) capped and uncapped trades. 

 1 For the prior cap size this means capturing and comparing the average daily trading volume of 5MM+ trades in

investment grade bonds during the pilot and the year before; for pilot cap size this means capturing and comparing

the average daily trading volume of 10MM+ trades during the pilot and the year before; and for capped and

uncapped trades means capturing and comparing the average daily trading volume of 10MM+ trades during the pilot

year and the number of 5MM+ trades during the year before the pilot. The same would be true for high yield bonds

using the pilot cap size and the prior cap size and for the other measurement criteria as modified accordingly based

on the criteria. 
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C. Average trade size of capped and uncapped trades during the pilot period and

compared to the year prior to the pilot, using 1) the prior cap size; 2) the pilot cap

size; and 3) capped and uncapped trades. 

D. Number of capped and uncapped trades during the pilot period and compared to

the year prior to the pilot, using 1) the prior cap size; 2) the pilot cap size; and 3)

capped and uncapped trades. 

E. Proportion of volume in block trades during the pilot period and compared to the

year prior to the pilot, using 1) the prior cap size; 2) the pilot cap size; and 3)

capped and uncapped trades. 

F. Price impact of block trades during the pilot period and compared to the year prior

to the pilot, using 1) the prior cap size; 2) the pilot cap size; and 3) capped and

uncapped trades. 

G. Transaction cost analysis using bid offer spreads, price impact studies and price

dispersion studies. Analysis for capped compared to uncapped trades.

H. Changes in dealer capital / inventory.

I. Dealer behavior — proportion of matching trades compared to committing

capital.

J. All of the above to be compared in normal and stressful conditions.

Additional Considerations

1. Alternatives Considered

a. Rather than apply the new dissemination cap sizes and changes to all corporate

bonds, divide bonds into a control group with no change and a test group with the

changes applied.

b. Changing the dissemination cap for non-investment grade corporate bonds to

“5MM+” rather than “3MM+”.

c. Below are select trade data concerning corporate bond trades averaged over the

last 5 years:
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