69–006

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

REPORT

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
2

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 widely disseminated 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
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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 counterparties 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,
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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.
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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
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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-thecounter 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.
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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 se-
8

curities 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 ø(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;

* * * * * * *

ø(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 (hereinafter in this section referred to as the ‘‘Advisory Board’’) to be com-
9

posed 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.

ø(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.

ø(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.

ø(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:

ø(i) the point in time at which a Regulatory Board should be

established;

ø(ii) the composition of a Regulatory Board;

ø(iii) the scope of the authority of a Regulatory Board;

ø(iv) the relationship of a Regulatory Board to the Commission and to existing self-regulatory organizations; and

ø(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.

ø(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,
10

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)

* * * * * * *
(11)

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.
12

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.
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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.

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