SEC Gives Big Board Green Light To Finalize Corporate-Bond Plan

Discussion in 'Wall St. News' started by freehouse, Jul 13, 2005.

    July 13, 2005; Page C4

    The Securities and Exchange Commission has given the New York Stock Exchange the green light to finalize plans to trade unlisted corporate bonds.

    Such a change is seen as a major step toward reversing more than a decade of dwindling bond trade at the NYSE by making thousands of additional issues eligible to trade there.

    But some fixed-income professionals said the effort's success would depend largely on the exchange's ability to develop a sufficient level of trading activity in the new bond issues to make it easier to buy or sell them at competitive prices.

    According to a notice in the SEC's news digest posted on its Web site yesterday, the commission approved publication in the Federal Register of several items needed to implement the NYSE's proposal. That would indicate a rule change is highly likely. Publication is expected soon and would begin a 30-day comment period, which could be extended.

    The NYSE's proposal would extend trade on its Automated Bond Systems from only NYSE-listed bonds to any bonds issued by companies that have listed equity securities on the NYSE, as well as the bonds of those companies' wholly-owned subsidiaries.

    That would make hundreds of unlisted bonds by debt-market giants, such as Ford Motor Co., General Motors Corp., and General Electric Co., eligible to trade on the Big Board for the first time.

    "The SEC's proposal represents a big win for fixed-income investors. It will facilitate their access to a much broader range of bonds on our ABS platform, providing them with the unparalleled transparency of real-time bond quotes and real-time bond trade reports," said Robert McSweeney, NYSE senior vice president of competitive position.

    Corporate-bond trading on the NYSE has dwindled over the past decade to around $5 million a day as corporations have shunned the listing process.

    Meanwhile, around $15 billion a day in corporate bonds change hands in the over-the-counter market every day, with firms executing deals via phone calls, squawk boxes, instant messaging and, more recently, on various nonpublic electronic-trading platforms.

    SEC officials and others have raised questions about whether the demise of listed bond trading has disadvantaged small investors by making it difficult for them to get pricing information.

    The NYSE's planned ramp-up in corporate-bond trading is expected to have its greatest initial impact on individual investors looking to trade odd lots of bonds.

    "When the change takes place, we'll want to figure out how to include the NYSE as a marketplace for our customers," said Mark Stys, vice president of fixed-income inventory at Fidelity in Boston. "Any place where the pools of liquidity increase, we want to make sure our customers have access."

    Mr. Stys cautioned, however, that dealer participation would be necessary to insure sufficient volume. Creating liquid markets in bonds is a huge challenge given that there are thousands of stocks but millions of bond issues, he added.

    That will also affect the commercial viability of trading unlisted corporate bonds for the NYSE, which has been seeking to expand the kind of products it trades as it pursues a plan to become a publicly held company. In April it announced plans to merge with Archipelago Holdings Inc.

    In February, the NYSE appointed John Holman, a technology and fixed-income expert formerly with Piper Jaffray Cos., as vice president of fixed income to oversee the expansion of fixed-income trading.