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Speaker 1: Hello, and welcome to another episode of the Odd Lots Podcast.

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Speaker 1: I'm Tracy Alloway. My co host Joe Wisenthal. Is a

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Speaker 1: way which means I get a chance to talk about

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Speaker 1: one of my all time favorite topics, which has to

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Speaker 1: be bond market structure um and particularly the evolution or

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Speaker 1: sometimes lack thereof, of that structure and the way that

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Speaker 1: a massive, massive market is actually traded. So when people

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Speaker 1: think about the corporate bond market, I think there's a

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Speaker 1: tendency to think way back to sort of liars poker

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Speaker 1: era corporate bond trading, like this was the big business

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Speaker 1: on Wall Street. People made lots of money from it,

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Speaker 1: You had certain personalities that were tied to it, and

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Speaker 1: it was sort of old fashioned the way bonds were traded.

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Speaker 1: And then fast forward to you know, post financial crisis,

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Speaker 1: the two thousand tens, and surprisingly, even as the stock

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Speaker 1: market had largely electronified, the corporate bond market was still

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Speaker 1: pretty much operating like it had in even the nine eighties.

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Speaker 1: You know, trades done by phone, some trades done by facts,

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Speaker 1: kind of amazingly, and then if you fast forward to

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Speaker 1: one We've spoken a lot on the show about the

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Speaker 1: idea of the pandemic forcing or increasing the rate of

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Speaker 1: digitalization in the broader economy, the idea of everyone ordering

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Speaker 1: stuff online and more things just moving to the cloud

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Speaker 1: and computerized processes. Interestingly, it seems like the pandemic has

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Speaker 1: had a little bit of that effect on the corporate

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Speaker 1: bond market as well. So we've actually seen the proportion

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Speaker 1: of corporate bond trades that are electronic go up. The

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Speaker 1: most recent research I saw, I think it was from

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Speaker 1: Greenwich Associates, had electronic trading as a proportion of overall

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Speaker 1: investment grade corporate bond trading at about forty of the

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Speaker 1: total UH. That is up from I think at the

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Speaker 1: beginning of and up from a minuscule one tenth of

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Speaker 1: total trading in eleven. So that tells you how far

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Speaker 1: we've come, But of course there is much further to go,

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Speaker 1: and there have been efforts to reform corporate bond trading

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Speaker 1: the way it's done for many, many years now, and

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Speaker 1: one of the most interesting developments in that space has

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Speaker 1: been the establishment of the Fixed Income Market Structure Advisory

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Speaker 1: Committee by the SEC. This was created back in with

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Speaker 1: the intention of improving the fixed income market and encouraging

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Speaker 1: its development So today I'm very pleased to say that

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Speaker 1: we are going to be checking in on what's going

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Speaker 1: on with the corporate bond market, whether or not Fim

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Speaker 1: Sack has been able to fix it or you know,

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Speaker 1: at least improve it moderately. We're gonna be doing that

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Speaker 1: with the perfect person. We're going to be speaking with

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Speaker 1: Larry Harris, who was on film Sack so on the

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Speaker 1: SEC committee. He's also the former chief economist at the SEC.

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Speaker 1: He was there from two thousand two to two thousand

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Speaker 1: four and he is currently the Fred V. Keenan Chair

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Speaker 1: in Finance at the USC Marshall School of Business. So, Larry,

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Speaker 1: thanks so much for coming on the show. Oh, it's

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Speaker 1: a pleasure to be here. So maybe just a first question.

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Speaker 1: I mean, it sounds like you have been in these

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Speaker 1: sort of trading and market micro structure space for a

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Speaker 1: very long time. Is this something that you've always been following. Yes,

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Speaker 1: I've been working in market microstructure pretty much from the

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Speaker 1: beginning of the academic field now probably forty years. So

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Speaker 1: given your expertise, I have to ask what that about

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Speaker 1: corporate bonds that seems to make them a little bit

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Speaker 1: more stubborn when it comes to things like electronic trading standardization,

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Speaker 1: uh other efforts to improve liquidity. It feels like the

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Speaker 1: corporate bond space, despite people trying to evolve it for

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Speaker 1: i mean decades now, it feels like it's definitely an

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Speaker 1: uphill battle. Tracy, that's a great question. If you listen

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Speaker 1: to the vested interests in the bond market, they'll tell

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Speaker 1: you that bonds are just simply different. They're different from equities,

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Speaker 1: they're different from options, they're different from futures, and they

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Speaker 1: say that the differences are what makes the market structure different.

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Speaker 1: Of course, they don't often articulate exactly what those differences are.

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Speaker 1: So often they'll tell you that they're different because there

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Speaker 1: are so many bonds, but there are even more options

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Speaker 1: that trade, and they trade in exchange markets and they

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Speaker 1: trade pretty well. They'll tell you that they're because they're

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Speaker 1: so risky. Although equities are more risky per dollar of

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Speaker 1: principle than our bonds. So it's a it's a little

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Speaker 1: hard to understand this question on its face. We're gonna

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Speaker 1: have to dig deeper. But as long as we're starting

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Speaker 1: with some history. As you started history, um, you started

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Speaker 1: around the eighties. I'd like to push it back much further. UH,

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Speaker 1: to share with you and our audience some very interesting

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Speaker 1: things that many people don't know. Bonds used to trade

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Speaker 1: almost exclusively in exchange markets at the New York Stock

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Speaker 1: Exchange and at the American Stock Exchange. Corporate bonds stopped

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Speaker 1: trading on the exchange markets in the mid forties, UH,

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Speaker 1: and an interesting paper was done by two academics, Bruno

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Speaker 1: Bier and Rick Green. And what they did is they

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Speaker 1: looked to see how those bonds traded in the forties

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Speaker 1: and in the late thirties and compared that trading to

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Speaker 1: how they presently trade now. And when I say how

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Speaker 1: they trade, I'm really referring to how expensive was it

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Speaker 1: to trade the bonds. And when I speak about expense,

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Speaker 1: I don't call I'm not speaking about the price. I'm

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Speaker 1: talking about the transaction costs of trading. So if you

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Speaker 1: buy a bond that's worth a hundred but you pay

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Speaker 1: a hundred one, then your cost was was one point

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Speaker 1: of par value. So these bonds that traded New York

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Speaker 1: Stock Exchange. I'll save the result for a moment, but

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Speaker 1: you can all anticipate what it's going to be. Let's

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Speaker 1: talk about how they traded. So they traded in order books,

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Speaker 1: just like the stocks trade, but because there were so

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Speaker 1: many bonds, they had to put the order books in

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Speaker 1: filing cabinets. And so these order books, these databases were

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Speaker 1: contained in filing cabinets. If you wanted to trade a bond,

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Speaker 1: you went to the bond specialist post and you mentioned,

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Speaker 1: you know, he said what bond you wanted to trade,

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Speaker 1: and the clerk would go. The specialists go and look

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Speaker 1: up the bond in the filing cabinet, find out who

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Speaker 1: had left orders for it. And so now the punchline,

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Speaker 1: of course, it is one that everybody's expecting in those

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Speaker 1: non electronic but order driven markets. So order driven means

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Speaker 1: exchange markets in which you have rules that match buyers

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Speaker 1: to sellers. So the most aggressive buyer, the one is

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Speaker 1: willing to pay the most gets matched to the most

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Speaker 1: aggressive seller, the one who's offering the lowest price. In

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Speaker 1: those order driven markets, bonds traded at lower transaction costs

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Speaker 1: ages ago. Then they were trading until just a few

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Speaker 1: years ago. So so that leaves us with the interesting

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Speaker 1: question why why did the markets move away from the

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Speaker 1: stock exchange where the stock exchanges Because the AMAX bonds

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Speaker 1: were also important. Why did they move away from the

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Speaker 1: stock exchanges and into the investment banks and the dealers

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Speaker 1: and brokers, So somehow they captured it. And this is

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Speaker 1: not really well understood. Bruno Bier and Rick Green speculate

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Speaker 1: about it. It's hard to imagine that it made sense

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Speaker 1: for the buy side, UH, the investors, because in the

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Speaker 1: end they did worse. But um I think it's just

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Speaker 1: because the investment banks probably controlled much of the supply

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Speaker 1: of bonds. They were buying and selling them. They were dealers,

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Speaker 1: and they preferred to trade as dealers then as some

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Speaker 1: dealers operating in exchange markets. Of course, dealers always operate

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Speaker 1: in exchange markets. There's nothing new there, but they're more

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Speaker 1: powerful when they trade in a dark environment where you

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Speaker 1: don't see the trade prices and you don't see the quotes.

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Speaker 1: Now fast forward and UH two thousand and two to

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Speaker 1: oh four or so. At the time I was chief economist,

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Speaker 1: the sec FINRA started the Trace bond price reporting project,

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Speaker 1: and the dealers were very opposed to having those trade

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Speaker 1: prices reported, even with a fifteen minute lag, which is

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Speaker 1: what was finally determined. Um I was privileged, along with

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Speaker 1: some others to engage in research that showed that making

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Speaker 1: those bond prices public information would lower investor transaction costs

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Speaker 1: by about a billion dollars per year. So the opposition

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Speaker 1: to the dealers to making the prices public kind of

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Speaker 1: withered away in the face of those empirical results. I'll

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Speaker 1: tell you two fund stories. There's somewhat self serving, but

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Speaker 1: does make the point about this story. Yeah. So the

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Speaker 1: first one is that, um, so the SEC did indeed

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Speaker 1: mandate that the bond trade prices be made public, and

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Speaker 1: now trace prices are available on the Internet and everybody

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Speaker 1: can see them. So the two stories are. First, um,

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Speaker 1: somebody came along, I forget the fellow's name, might have

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Speaker 1: been a woman and replicated the study in which I

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Speaker 1: participated and discovered that indeed investors were saving billion dollars.

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Speaker 1: So my study had been based on just a trial

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Speaker 1: of trace and from the bonds that were public, and

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Speaker 1: we compared them to the bonds that weren't public publicly

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Speaker 1: where the information wasn't publicly available to trade price information.

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Speaker 1: From doing the comparison, were able to determine what we

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Speaker 1: thought the savings would be. The way we did the study,

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Speaker 1: we compared how the bonds that were trading in more

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Speaker 1: transparent markets, the initial trace transparent bonds. We compared how

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Speaker 1: they traded to the ones that had not yet been converted,

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Speaker 1: and we we found that about a billion dollars would

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Speaker 1: be saved by investors. And so the first story is that, uh, indeed,

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Speaker 1: somebody looked at it a few years later and determined

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Speaker 1: that our estimate was was on target. So I I say,

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Speaker 1: somewhat immodestly that we did well. But the important point

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Speaker 1: is that not only on a prospective basis, but on

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Speaker 1: a retrospective basis, it appears that that bond price transparency

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Speaker 1: substantially lower transaction costs. So that's the first story. The

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Speaker 1: second story is a little bit more fun. And Nette Nazareth,

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Speaker 1: who was then the director of what was then called

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Speaker 1: the Division of Trading and Markets, who was a big

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Speaker 1: proponent of making the bond prices transparent. She kept asking me, Larry,

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Speaker 1: how come you're not done with that study? How come

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Speaker 1: night you're done done with the study? Because they needed

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Speaker 1: that study to build the political wherewithal to get the

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Speaker 1: capital to to get this done. And I kept telling her,

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Speaker 1: listen and that I'd like to have it done yesterday,

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Speaker 1: but we're going to be super careful because the dealers

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Speaker 1: are going to criticize this study. So fast forward about

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Speaker 1: ten years. I'm at some conference. I'm talking to somebody,

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Speaker 1: you know, an academic conference, and uh and this guy

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Speaker 1: sort of drops uh. He says, um, you know you

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Speaker 1: did that bond study about transaction costs to the initial

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Speaker 1: trace down And I said yeah. He says, uh says,

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Speaker 1: I know, I know a backstory about that. I'm going yeah,

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Speaker 1: he says, he says, the dealers, Uh sent it to

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Speaker 1: a colleague of mine at the university. I won't say

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Speaker 1: which one, but it was a strong, reputable university, asking

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Speaker 1: is there anything wrong with the study? Uh, you know,

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Speaker 1: can you find econometric problems or something like that? And Uh.

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Speaker 1: The response was apparently no, you're gonna have to live

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Speaker 1: with it. It was well done. So again a pat

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Speaker 1: on my back. But also also there's a more important point,

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Speaker 1: which is that there's a role for academic work. Rigorous

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Speaker 1: work didn't have to be done by academic can be

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Speaker 1: done by practitioners as well, and by the economists at

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Speaker 1: the SEC. There's a role for rigorous work for trying

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Speaker 1: to understand how things could be different. I mean, that

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Speaker 1: is such a fascinating um insight into the way the

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Speaker 1: SEC works and also the way it's various stakeholders um

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Speaker 1: sort of interact with it. There's one thing I wanted

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Speaker 1: to ask you before we sort of move on to

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Speaker 1: what happened next, But can we just can we focus

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Speaker 1: in on on the dealers here a little bit more so?

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Speaker 1: You know, you you kind of touched on this, this

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Speaker 1: idea that the dealers have vested interest in the way

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Speaker 1: that the current system works. So I brought up liars

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Speaker 1: Poker at the beginning. You know, this is the idea

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Speaker 1: of people sitting at the big dealer banks who are

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Speaker 1: taking calls from investors who want to buy or sell

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Speaker 1: certain bonds. They're basically the middleman who are holding the

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Speaker 1: informational power and who can say like, well, I have

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Speaker 1: a quote on this one or I have a quote

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Speaker 1: on that one, and no one really is quite clear

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Speaker 1: what the actual price of these bonds are. They're sitting

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Speaker 1: in the middle. It's a very intransparent process. Now, in

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Speaker 1: the years since then, we have had these new electronic

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Speaker 1: trading venues set up, and here I have to do

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Speaker 1: a massive disclosure and say that Bloomberg has one UM,

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Speaker 1: so we have Bloomberg Trade Web and market Access, and

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Speaker 1: my understanding of those is that basically they've made dealing

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Speaker 1: with dealers potentially more efficient. So you can do a

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Speaker 1: request for a quote with just you know, a click

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Speaker 1: of a button and you can get one very very quickly.

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Speaker 1: But they still preserve some of the power of the

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Speaker 1: dealers in that process. You can't do a deal directly

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Speaker 1: with another buy side participants for instance. Is that right?

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Speaker 1: Is that the right way to think about it? Yes,

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Speaker 1: that's generally correct. And though they would like to create

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Speaker 1: exchange type markets, uh, they know that they still need

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Speaker 1: the dealers to provide the liquidity and so that the

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Speaker 1: dealers call the shots. Tracy, you're, you're. You use the

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Speaker 1: word um informational power. You could not be more on

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Speaker 1: target with that phrase. So, just so that everybody listening

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Speaker 1: has a clear understanding of how powerful information is, let's

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Speaker 1: discuss a simple example of where that everybody can relate to.

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Speaker 1: Suppose you need to buy a say a used car

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Speaker 1: or could be a new car, uh, and you go

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Speaker 1: to the dealer and you find what you want to buy,

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Speaker 1: and you you then make a bid. Okay, now, they

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Speaker 1: two mistakes that you can make. You can underbid or

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Speaker 1: you can overbid. Now, if you underbid, here's what happens.

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Speaker 1: So the salesman says, say, Larry, I'd really love to

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Speaker 1: sell you that car at that price, but if we

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Speaker 1: do that, we just can't stay in business. The price

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Speaker 1: is simply too low. So, um, you don't do the deal.

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Speaker 1: Now suppose that you overbid. What does the salesman say.

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Speaker 1: Salesman says, hey, Larry, I'd really like to sell you

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Speaker 1: that car, but if I do so at that price,

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Speaker 1: we're going to go out of business. But hang on

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Speaker 1: a minute, let me see what my sales manager says.

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Speaker 1: And of course he comes back and sells you the

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Speaker 1: car at the price that's uh, that's too high. So

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Speaker 1: what's going on here? Obviously you can make two mistakes.

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Speaker 1: But because the dealer knows values better than you do,

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Speaker 1: the dealer isn't gonna sell it for undervalue, but it'd

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Speaker 1: be more than happy to sell it for overvalue. And

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Speaker 1: so this is the story. This is why information about

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Speaker 1: values is so incredibly important. Unfortunately, we only have half

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Speaker 1: the story on price values. We've got now the trace

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Speaker 1: data that we just talked about which tells you the

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Speaker 1: prices at which bonds traded. By and large, we don't

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Speaker 1: have very much quotation data, although it's increasing substantially, we

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Speaker 1: don't have much quotation data where the dealers are telling

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Speaker 1: the public the prices which they're willing to trade. So

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Speaker 1: if you want to go buy a bond and you're smart,

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Speaker 1: what you do is you you you go and call

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Speaker 1: up a dealer and say what's your offer, and then

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Speaker 1: you call another dealer and ask for what your offer,

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Speaker 1: and you call another dealer and you can sort of

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Speaker 1: make them all know that you're doing this, or you

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Speaker 1: can do a request for quote, which is essentially the

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Speaker 1: same thing, and you try to get them to compete

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Speaker 1: with each other. But it's an expensive process and um,

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Speaker 1: they're only volunteering information to you, not to the public,

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Speaker 1: so it's not quite as effective as the competition we

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Speaker 1: see every single day for even a liquid securities at

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Speaker 1: the various stock exchange is or the options exchanges. So

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Speaker 1: when pricing data became available on trades, you're getting the

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Speaker 1: specific points, the specific prices at what which bonds are

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Speaker 1: being traded, but you're not getting potential quotes from a

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Speaker 1: bunch of dealers about like where they could buy or

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Speaker 1: seldom you're getting the actual transaction data. How did that

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Speaker 1: change the market or change behavior of participants. Well sophisticated

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Speaker 1: people and even some less sophisticated who know enough to

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Speaker 1: look up bond prices can find out where the bonds

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Speaker 1: recently traded. And if a bond recently traded, you know,

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Speaker 1: just minutes ago, then you have a good point of

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Speaker 1: reference to what the value that bond is, especially if

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Speaker 1: it's a very large trade. The large trades tend to

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Speaker 1: be more informative than the smaller trades because the smaller traders, frankly,

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Speaker 1: you know, they just don't know as much. They don't

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Speaker 1: know how to they don't know how to control the

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Speaker 1: information environment. They trade through brokers who aren't particularly how full,

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Speaker 1: and so the smaller trade prices aren't so important. But

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Speaker 1: if you want to trade a bond, say you're trying

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Speaker 1: to sell a bond, is a more typical story than

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Speaker 1: wanting to buy one. Uh, you want to sell a

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Speaker 1: bond that you need that you need to generate some liquidity.

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Speaker 1: Maybe that bond didn't trade yesterday or today, Um, that

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Speaker 1: would be ideal. Say it traded last Um, you know

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Speaker 1: a month ago or perhaps a year ago. Uh, there

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Speaker 1: are a lot of bonding issues out there, and some

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Speaker 1: of them, they we say they trade only by appointment,

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Speaker 1: which is kind of funny. Okay, so you've got a

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Speaker 1: bond trade from ages ago, and now all the question

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Speaker 1: is what's the thing worth? And you know there are

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Speaker 1: bond pricing services that can give you some sense of

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Speaker 1: what the bond is worth. That's very important because mutual

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Speaker 1: funds that hold bonds have to value their bonds and

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Speaker 1: if they don't trade, well, I mean, what's the bond worth?

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Speaker 1: They've got to know every day. So these pricing services

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Speaker 1: what they do is they say, okay, this bond didn't trade,

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Speaker 1: but it looks a lot like these other bonds, maybe

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Speaker 1: bonds by the same issuer, or maybe be bonds with

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Speaker 1: the same cupon rate, the same maturity, the same the

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Speaker 1: same preference in liquidation, stuff like that. And so they say, okay,

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Speaker 1: we got a model that says if if these other

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Speaker 1: bonds are sort of recently traded and we see their prices,

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Speaker 1: we can infer what this thing is probably worth. Of course,

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Speaker 1: you know, the small trader, the guy who's trading odd lots.

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Speaker 1: You're on the right show. I know. That's that's why

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Speaker 1: I laughed here. Uh. Yeah, they don't get that information

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Speaker 1: and it's expensive. And in any event, though, um, what

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Speaker 1: the pricing services say is not necessarily true either. It's

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Speaker 1: just their best estament. Real truth comes when people are

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Speaker 1: ready to put their money on the on the table

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Speaker 1: and trade and actually negotiate prices. So it's good to

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Speaker 1: have those trace prices, but it would be even better

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Speaker 1: if we had perspective prices, pre trade prices. The quotes,

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Speaker 1: there are a lot of them out now out there now,

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Speaker 1: and uh, entities like bond to click are starting to

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Speaker 1: aggregate them from dealers. The dealers are willing to share

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Speaker 1: with bond click because they want to see what the

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Speaker 1: other dealers are saying. The dealers aren't They're not They're

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Speaker 1: not dummies. Uh, they're very very sharp people, of course.

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Speaker 1: But the consequence, though, is that increasingly this data is

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Speaker 1: becoming more public and you know, bond click is uh

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Speaker 1: appears to be leading here, but I suspect I believe

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Speaker 1: that there's some others as well. The dealers aren't entirely

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Speaker 1: happy about it. So it's not an easy proposition. As

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Speaker 1: long as you're speaking about a little bit of history.

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Speaker 1: Cannor Fitzgerald ran a open outcry sort of brokered bond

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Speaker 1: market and treasuries, and through their E Trade subsidiary since

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Speaker 1: spun out, they wanted to get the bonds into an

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Speaker 1: electronic trading system and they had had a terribly difficult

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Speaker 1: time doing that. The dealers basically boycotted the system for

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Speaker 1: a while, but they persevered. They managed to get it done,

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Speaker 1: but it's not easy. The big challenge that these systems

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Speaker 1: face creating an exchange like system is that when somebody

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Speaker 1: needs to trade, they usually need to trade right now,

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Speaker 1: and they look at a system they say, wow, that

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Speaker 1: is a cracker jack system. That's beautiful. I'd love to

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Speaker 1: trade there, but right now, I got to get my

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Speaker 1: order done and there's nobody else there, so I'm gonna

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Speaker 1: get my order done. And when when that market becomes looking,

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Speaker 1: you give me a call and I'll definitely send my

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Speaker 1: orders there. So it's a chicken and egg problem here.

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Speaker 1: Only the problem is it's not which came first, is

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Speaker 1: that neither comes first because people need to get their

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Speaker 1: business done and so that's that's the force that keeps

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Speaker 1: change from happening too quickly. But On the flip side,

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Speaker 1: these electronics systems have vastly decreased the cost of dealing,

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Speaker 1: and now you have lots of proprietary traders who are

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Speaker 1: willing to deal bonds like they deal stocks. The deal

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Speaker 1: odd lots, but they're willing to come back over and

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Speaker 1: over again, and so increasingly you're gonna start seeing, and

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Speaker 1: we've already seen it, are algorithms used by institutions to

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Speaker 1: fill large orders in odd lots, and they'll they'll do

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Speaker 1: that because there are dealers who are well dealers are

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Speaker 1: proprietary traders, but let's call them proprietary traders are essentially using,

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Speaker 1: you know, some crude version of the high frequency trading

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Speaker 1: methods that they use in the stock markets to deal.

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Speaker 1: We should be clear about what bonds are. So here's

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Speaker 1: a fun way of thinking about a bond. People tell

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Speaker 1: you that bonds are something special, but from this point

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Speaker 1: of view, there perhaps not so special bonds if you

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Speaker 1: think about their risk. There are a package of two

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Speaker 1: types of risk. There's interest rate risk and it's bundled

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Speaker 1: with credit risk. So credit risk is the risk that

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Speaker 1: the company that's promised to pay off its bonds goes

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Speaker 1: bankrupt and you don't get paid. An interest rate risk

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Speaker 1: is the risk that, say you bought a bond and

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Speaker 1: then interest rates rise in the price of your bond drops.

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Speaker 1: So that's not comfortable. So think about this risk. What

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Speaker 1: is there about putting both risks into a single instrument

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Speaker 1: and tying them together with an invisible string. The string

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Speaker 1: is actually called the bond covenant, the contract that sets

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Speaker 1: up the bond. What is there about doing that that

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Speaker 1: makes the bond something different from the risk that trades elsewhere.

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Speaker 1: So the interest rate risk trades in highly liquid treasury

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Speaker 1: bond markets. They are also in the futures markets. They

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Speaker 1: are whether they are cash or in the futures. They

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Speaker 1: trade in these order driven exchange like systems, and the

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Speaker 1: credit risk, as we mentioned earlier, the credit risk of

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Speaker 1: bonds is even as much less than the credit risk

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Speaker 1: of the associated stocks. So the credit risk is being

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Speaker 1: traded in again order driven markets, the stock exchanges and

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Speaker 1: the similar systems, and they're both highly liquid markets with

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Speaker 1: lots and lots of pre trade and post trade order exposure.

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Speaker 1: So pre traders, the quotes and post trade or the

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Speaker 1: trade prices, and those markets function really well. So what

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Speaker 1: is there about that magic string that connects those two

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Speaker 1: risks into a single bond that somehow makes it necessary

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Speaker 1: to trade it in the dark. And if you've got

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Speaker 1: a good answer, I I'd love to hear it, because

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Speaker 1: I've heard lots of people try to explain it, but

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Speaker 1: nobody has convinced me. And I'll remind you again one

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Speaker 1: final reminder before we turn to another topic. That explanation,

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Speaker 1: the magical explanation, also has to explain why it didn't

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Speaker 1: operate in the nineties when these markets were trading in

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Speaker 1: ex anti and ex post transparent markets at the exchanges.

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Speaker 1: So there's anybody wants to explain this one is going

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Speaker 1: to have to work really hard to be very creative. Well,

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Speaker 1: I think that brings us up to modern times very

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Speaker 1: very well. So you know, we have some progress when

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Speaker 1: it comes to pricing transparency, notably the trace data which

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Speaker 1: is now being produced based on actual bond trades but

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Speaker 1: not potential quotes. You have the electronic trading venues that

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Speaker 1: are mostly operating on a request for quote basis and

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Speaker 1: are mostly preserving some of the informational power of the dealers.

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Speaker 1: And you have some venues that are trying to aggregate

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Speaker 1: prices um and quotes for bond trades like bond click,

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Speaker 1: which you mentioned, but sort of improvements on the edges,

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Speaker 1: nothing massively fundamental. And yet this is something that you know,

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Speaker 1: you laid it out very clearly earlier. This is something

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Speaker 1: that has been of concern to the SEC for a

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Speaker 1: long time now, and I personally remember speaking to think

432
00:26:00,960 --> 00:26:04,200
Speaker 1: it was Dan Gallagher back in and he was saying,

433
00:26:04,440 --> 00:26:08,120
Speaker 1: you know, it's time to address the liars poker dynamics

434
00:26:08,520 --> 00:26:12,359
Speaker 1: embedded in the corporate bond market system. And yet here

435
00:26:12,400 --> 00:26:16,199
Speaker 1: we are years later, still talking about potential fixes or

436
00:26:16,240 --> 00:26:19,320
Speaker 1: improvements that could be made. So I want to talk

437
00:26:19,320 --> 00:26:22,320
Speaker 1: to you specifically about one of the big SEC projects

438
00:26:22,359 --> 00:26:24,840
Speaker 1: to try to fix all of this, which is the

439
00:26:25,000 --> 00:26:30,919
Speaker 1: establishment of film SACK, the Fixed Income Market Structure Advisory Committee.

440
00:26:31,119 --> 00:26:35,399
Speaker 1: In this was supposed to be. My understanding is it

441
00:26:35,480 --> 00:26:38,560
Speaker 1: was supposed to be the big effort by the SEC

442
00:26:38,800 --> 00:26:41,480
Speaker 1: to try to come to a consensus on what needs

443
00:26:41,520 --> 00:26:45,040
Speaker 1: to be done and then actually implement it. And you

444
00:26:45,080 --> 00:26:47,199
Speaker 1: are on the committee, So maybe maybe you could give

445
00:26:47,240 --> 00:26:49,639
Speaker 1: us your perspective of what exactly the goals were when

446
00:26:49,680 --> 00:26:53,280
Speaker 1: it was established. Well, I suppose it depends who you

447
00:26:53,359 --> 00:26:55,960
Speaker 1: ask and how Canada, they will be when they respond.

448
00:26:57,080 --> 00:26:58,760
Speaker 1: When I went into it, I thought this was a

449
00:26:58,800 --> 00:27:02,640
Speaker 1: great opportunity to modernize the markets. Um I had been

450
00:27:02,800 --> 00:27:06,119
Speaker 1: instrumental with the net Nazareth and many others. Remember every

451
00:27:06,160 --> 00:27:09,240
Speaker 1: success has lots and lots of grandparents and parents and

452
00:27:09,680 --> 00:27:13,239
Speaker 1: godfathers and god mothers and so forth. We have been

453
00:27:13,320 --> 00:27:19,440
Speaker 1: instrumental in moving the stock markets from open outcry floor

454
00:27:19,480 --> 00:27:23,560
Speaker 1: based systems into electronic systems that are incredibly efficient now.

455
00:27:24,000 --> 00:27:26,199
Speaker 1: So that was neat, and so I thought, gee, this

456
00:27:26,240 --> 00:27:28,960
Speaker 1: would be a really great time to see what we

457
00:27:29,000 --> 00:27:32,680
Speaker 1: can do to to solve some of these problems. They're

458
00:27:32,720 --> 00:27:35,200
Speaker 1: not really problems, but just to make the markets better.

459
00:27:36,320 --> 00:27:38,439
Speaker 1: And so some things that I was hoping we'd be

460
00:27:38,480 --> 00:27:40,360
Speaker 1: able to do is that we could, you know, call

461
00:27:40,520 --> 00:27:44,159
Speaker 1: for the formation of a national best bitter offer, or

462
00:27:44,200 --> 00:27:48,320
Speaker 1: have Finra do like NASDAC did, or have NASDAC and

463
00:27:48,600 --> 00:27:52,359
Speaker 1: the nas d do this create a a nasdak. The

464
00:27:52,359 --> 00:27:56,080
Speaker 1: original nasdack for bonds. The original naz Back was just

465
00:27:56,200 --> 00:28:00,080
Speaker 1: a quotation system where he showed everybody's quotes, all the

466
00:28:00,119 --> 00:28:04,560
Speaker 1: dealer quotes. It's called a quote tableau, so it just

467
00:28:04,640 --> 00:28:07,560
Speaker 1: seeing the quotes. Ex Anti gets people to compete more

468
00:28:07,640 --> 00:28:10,280
Speaker 1: and makes the markets better. And then they ultimately evolved

469
00:28:10,280 --> 00:28:12,960
Speaker 1: into the NASDAC stock market, which is a full blown

470
00:28:12,960 --> 00:28:17,080
Speaker 1: exchange and and regulated as such. Now, so I thought,

471
00:28:17,160 --> 00:28:18,960
Speaker 1: you know, at a minimum we could try to ask

472
00:28:19,040 --> 00:28:24,360
Speaker 1: for that. There was almost no support for that. There

473
00:28:24,400 --> 00:28:26,800
Speaker 1: were a few people who were in the boat, but

474
00:28:27,200 --> 00:28:30,920
Speaker 1: the vast majority of the members of FIM SACH were

475
00:28:30,960 --> 00:28:36,800
Speaker 1: opposed to any change so radical. Who were the other members? Well,

476
00:28:36,960 --> 00:28:39,640
Speaker 1: we'll talk about that, But so we weren't calling you

477
00:28:39,680 --> 00:28:43,240
Speaker 1: know this what this proposal was not a call for,

478
00:28:43,600 --> 00:28:46,520
Speaker 1: you know, a trade through rule, which would be pretty radical.

479
00:28:46,880 --> 00:28:49,800
Speaker 1: We're just saying, you know, let people, let's collect all

480
00:28:49,840 --> 00:28:53,880
Speaker 1: the ex anti data that the quote data. So who

481
00:28:53,880 --> 00:28:56,680
Speaker 1: were the people on FIM SACK. Well, by law, these

482
00:28:56,760 --> 00:29:01,920
Speaker 1: advisory committees have to be representative of sort of everybody

483
00:29:02,000 --> 00:29:04,640
Speaker 1: who has an interest in the issue. Everybody has to

484
00:29:04,680 --> 00:29:07,640
Speaker 1: be the at the table. But the law doesn't tell

485
00:29:07,680 --> 00:29:10,320
Speaker 1: you how the table should be weighted. You know, how

486
00:29:10,320 --> 00:29:12,960
Speaker 1: many people of each type. And so you had the

487
00:29:13,000 --> 00:29:16,400
Speaker 1: bond dealers, you had the bond issuers, you had a

488
00:29:16,400 --> 00:29:21,080
Speaker 1: few academics, you had a few investor advocates, you had

489
00:29:21,120 --> 00:29:25,200
Speaker 1: the alternative trading systems. You had some dealers, I think

490
00:29:25,200 --> 00:29:29,959
Speaker 1: I mentioned them as well, issuers and large institutional investors.

491
00:29:30,160 --> 00:29:33,120
Speaker 1: So I think it pretty well covers the gamut, but

492
00:29:33,200 --> 00:29:37,040
Speaker 1: it was weighted heavily towards people who were either vested

493
00:29:37,080 --> 00:29:42,160
Speaker 1: in the status quo or who we're dependent on people

494
00:29:42,200 --> 00:29:44,440
Speaker 1: who are vested in the status quo. So if you're

495
00:29:44,480 --> 00:29:46,720
Speaker 1: an issuer, you don't want to go out and piss

496
00:29:46,760 --> 00:29:50,320
Speaker 1: off your investment bank because because you've got to do

497
00:29:50,360 --> 00:29:53,560
Speaker 1: business with them, and so basically you just go along

498
00:29:54,160 --> 00:29:57,640
Speaker 1: and uh, you know, I would make in passion speeches

499
00:29:57,680 --> 00:30:00,320
Speaker 1: about how we should be doing what's best for the

500
00:30:00,360 --> 00:30:03,200
Speaker 1: country and stuff like that, and they all, in their

501
00:30:03,240 --> 00:30:05,640
Speaker 1: own way, thought that they were doing what's best for

502
00:30:05,680 --> 00:30:08,960
Speaker 1: the country. But I think that perhaps there are points

503
00:30:08,960 --> 00:30:13,360
Speaker 1: of view might have been partially compromised or at least

504
00:30:13,800 --> 00:30:17,959
Speaker 1: subtly influenced by their self interest. So I'm trying to

505
00:30:18,000 --> 00:30:20,320
Speaker 1: be polite, but you know exactly what I've said, and

506
00:30:20,360 --> 00:30:24,280
Speaker 1: it's not surprising. There's a lot of fear that if

507
00:30:24,280 --> 00:30:28,520
Speaker 1: we made any changes, we'd screw things up. And so

508
00:30:29,080 --> 00:30:32,400
Speaker 1: the problem to getting changed is that our bond markets

509
00:30:32,560 --> 00:30:35,920
Speaker 1: are for all their awards the best bond markets in

510
00:30:35,920 --> 00:30:39,080
Speaker 1: the world. They could be a whole lot better. I

511
00:30:39,160 --> 00:30:42,160
Speaker 1: know that from my experience, and uh, a lot of

512
00:30:42,200 --> 00:30:44,760
Speaker 1: other people know it, but getting it there is really difficult,

513
00:30:45,160 --> 00:30:51,479
Speaker 1: and so it's very challenging and disappointing. My understanding was,

514
00:30:51,600 --> 00:30:54,840
Speaker 1: I mean, this can have come as a surprise to

515
00:30:55,280 --> 00:30:59,160
Speaker 1: anyone who created this committee, Like if you get a

516
00:30:59,280 --> 00:31:03,960
Speaker 1: bunch of varying interests together in the room, they might

517
00:31:04,000 --> 00:31:08,360
Speaker 1: not be able to agree on fixing the market or

518
00:31:08,440 --> 00:31:11,760
Speaker 1: improving the market, especially given that they haven't really agreed

519
00:31:11,800 --> 00:31:13,640
Speaker 1: on how to do that, you know, for many, many

520
00:31:13,720 --> 00:31:17,000
Speaker 1: years previously. And I always thought the idea of getting

521
00:31:17,000 --> 00:31:20,240
Speaker 1: the SEC involved was that you would have an independent

522
00:31:20,400 --> 00:31:24,640
Speaker 1: arbiter who could look at this information and try to,

523
00:31:25,000 --> 00:31:28,320
Speaker 1: you know, come up with a solution that might be

524
00:31:28,360 --> 00:31:33,600
Speaker 1: independent of the individual interests of people in the market currently.

525
00:31:33,720 --> 00:31:38,000
Speaker 1: But that doesn't seem to have happened, judging by the

526
00:31:38,080 --> 00:31:41,040
Speaker 1: lack of news that I've seen on you know, stuff

527
00:31:41,080 --> 00:31:45,360
Speaker 1: being proposed or coming out of the committee. Well, there's

528
00:31:45,400 --> 00:31:48,479
Speaker 1: a lot, there's a lot in that. So I mentioned

529
00:31:48,520 --> 00:31:53,360
Speaker 1: that the composition of film Sack basically established what they

530
00:31:53,360 --> 00:31:55,360
Speaker 1: were going to do, and what they were not willing

531
00:31:55,400 --> 00:31:58,120
Speaker 1: to do. It's instructive that the very first thing that

532
00:31:58,200 --> 00:32:01,160
Speaker 1: they proposed was to the a the reporting of of

533
00:32:01,320 --> 00:32:04,960
Speaker 1: super large bond trades. Right now, their prices are reported

534
00:32:04,960 --> 00:32:07,680
Speaker 1: within fifteen minutes with the marker saying that the trade

535
00:32:07,760 --> 00:32:09,840
Speaker 1: is if it's an investment grade bond, it's more than

536
00:32:09,880 --> 00:32:12,600
Speaker 1: five million dollars, and then six months later you can

537
00:32:12,640 --> 00:32:15,000
Speaker 1: find out the full size. But who cares at that

538
00:32:15,040 --> 00:32:18,040
Speaker 1: point and five million dollar trade is plenty big enough,

539
00:32:18,080 --> 00:32:21,400
Speaker 1: you know, it's big. So they proposed that that we

540
00:32:21,440 --> 00:32:25,719
Speaker 1: should delay reporting those trade prices and sizes for I

541
00:32:25,760 --> 00:32:28,640
Speaker 1: think three days or something like that, but then we'll

542
00:32:28,680 --> 00:32:33,480
Speaker 1: report the whole thing. So there was like, well, we'll

543
00:32:33,520 --> 00:32:35,840
Speaker 1: give you something. But what they were taking away was

544
00:32:35,920 --> 00:32:38,640
Speaker 1: really really meaningful, and this is the first thing they proposed.

545
00:32:39,240 --> 00:32:41,760
Speaker 1: So that was like a shock to me. It's like

546
00:32:41,800 --> 00:32:45,840
Speaker 1: we're going backwards. Uh, it's just crazy. Okay, So the

547
00:32:45,960 --> 00:32:49,600
Speaker 1: SEC appoints all these people and they according to how

548
00:32:49,640 --> 00:32:53,280
Speaker 1: they do the waiting, they can determine the outcome. So

549
00:32:53,400 --> 00:32:56,560
Speaker 1: let's be generous to the SEC and say that there

550
00:32:56,600 --> 00:32:59,480
Speaker 1: are a couple of different ways that change can take place,

551
00:32:59,840 --> 00:33:04,200
Speaker 1: and how you feel about these ways depends on how

552
00:33:04,280 --> 00:33:07,480
Speaker 1: you feel about uninformed investors and how you feel about

553
00:33:07,520 --> 00:33:11,920
Speaker 1: political economy or your political philosophy. So one way is

554
00:33:11,920 --> 00:33:16,320
Speaker 1: for the SEC to mandate change. So we did this

555
00:33:16,400 --> 00:33:19,800
Speaker 1: when we were making changes to equity market structure to

556
00:33:19,840 --> 00:33:22,560
Speaker 1: make the markets electronic. That was reag MS and it

557
00:33:22,600 --> 00:33:26,760
Speaker 1: was extraordinarily successful. So the SEC has the power to

558
00:33:26,960 --> 00:33:29,880
Speaker 1: regulate markets, and it gets challenged by the incumbents, but

559
00:33:29,920 --> 00:33:32,000
Speaker 1: in the end, if they do their work properly, they

560
00:33:32,000 --> 00:33:34,760
Speaker 1: can get what they want and done. The argument for

561
00:33:34,800 --> 00:33:37,880
Speaker 1: the SEC doing this is that somebody has to represent

562
00:33:38,000 --> 00:33:40,640
Speaker 1: the interests of uninformed investors who will never be able

563
00:33:40,680 --> 00:33:43,720
Speaker 1: to do this by themselves. Okay, so that's an argument.

564
00:33:45,160 --> 00:33:49,880
Speaker 1: The counter argument, which is also respectful, is that listen,

565
00:33:50,160 --> 00:33:53,120
Speaker 1: f the markets would be better in a changed state.

566
00:33:53,600 --> 00:33:56,360
Speaker 1: There will be people who will provide those changes, and

567
00:33:56,400 --> 00:33:59,720
Speaker 1: though it might be difficult, uh, it's not impossible, and

568
00:33:59,760 --> 00:34:03,560
Speaker 1: in US it's impossible, we shouldn't regulate. So, for instance,

569
00:34:03,760 --> 00:34:07,200
Speaker 1: there are private entities who are now aggregating best bids

570
00:34:07,240 --> 00:34:11,000
Speaker 1: and offers. We talked about bond click. There are brokers

571
00:34:11,000 --> 00:34:13,759
Speaker 1: who are doing it as well. So interactive brokers will

572
00:34:13,800 --> 00:34:19,200
Speaker 1: allow its clients to trade on bond markets where Interactive

573
00:34:19,280 --> 00:34:23,200
Speaker 1: is collected quotes from a multitude of dealers. And more interestingly,

574
00:34:23,680 --> 00:34:29,120
Speaker 1: Interactive will allow their clients to post their offers to trade,

575
00:34:29,480 --> 00:34:31,520
Speaker 1: so they can post bids and offers just like you

576
00:34:31,560 --> 00:34:34,560
Speaker 1: can in the stock market, and uh they post them

577
00:34:34,680 --> 00:34:38,000
Speaker 1: at venues where they actually might get hit. And so

578
00:34:38,080 --> 00:34:41,279
Speaker 1: instead of always buying at the ask price, you might

579
00:34:41,320 --> 00:34:42,880
Speaker 1: be able to buy at the bid price if you

580
00:34:42,960 --> 00:34:45,719
Speaker 1: trade through Interactive. Now, in the interest of full disclosure,

581
00:34:45,760 --> 00:34:48,600
Speaker 1: I have to tell everybody that I am a director.

582
00:34:48,640 --> 00:34:53,000
Speaker 1: I'm actually the lead independent director of Interactive, and so um,

583
00:34:53,040 --> 00:34:56,480
Speaker 1: you should recognize that that. Uh, I have an interest

584
00:34:56,520 --> 00:34:59,359
Speaker 1: in letting people know about this. But they're innovative and

585
00:34:59,640 --> 00:35:03,520
Speaker 1: that's in things. So going back to political philosophy, clients

586
00:35:03,600 --> 00:35:06,480
Speaker 1: want this, they can go trade through Interactive brokers, and

587
00:35:06,480 --> 00:35:09,800
Speaker 1: if SWAB sees that they're losing clients or e Trade

588
00:35:10,320 --> 00:35:13,400
Speaker 1: or you know, merrit Trader, they can start offering the

589
00:35:13,440 --> 00:35:17,279
Speaker 1: same services. So the premise here, of course is that

590
00:35:17,920 --> 00:35:24,520
Speaker 1: ultimately the uninformed and unknowledgeable trader will benefit because there

591
00:35:24,520 --> 00:35:28,040
Speaker 1: are knowledgeable traders who put significant demands on the system

592
00:35:28,080 --> 00:35:31,400
Speaker 1: and cause the system to change that may take twenty

593
00:35:31,480 --> 00:35:34,520
Speaker 1: or thirty years, or may never happen. It may only

594
00:35:34,560 --> 00:35:37,160
Speaker 1: happen for the informed traders, and everybody else sort of

595
00:35:37,200 --> 00:35:41,359
Speaker 1: gets left behind because people never know any better. And

596
00:35:41,560 --> 00:35:43,919
Speaker 1: if that bothers you, then you're back into the first

597
00:35:43,960 --> 00:35:47,560
Speaker 1: camp that says maybe the SEC should do something. So

598
00:35:47,840 --> 00:35:49,680
Speaker 1: from my point of view, I think that the SEC

599
00:35:49,800 --> 00:35:52,279
Speaker 1: should exercise a little bit more power. I don't like

600
00:35:52,320 --> 00:35:55,400
Speaker 1: to see them do too much regulation, but they should

601
00:35:55,400 --> 00:35:58,960
Speaker 1: exercise power when you have certain problems in the market

602
00:35:59,000 --> 00:36:03,000
Speaker 1: that make competitive solutions difficult, and those problems are agency

603
00:36:03,040 --> 00:36:06,759
Speaker 1: problems where people are represented by people who have conflicts

604
00:36:06,800 --> 00:36:10,440
Speaker 1: of interest. The people who are doing the representation, like

605
00:36:10,520 --> 00:36:14,480
Speaker 1: the brokers, they don't have a strong interest in serving

606
00:36:14,480 --> 00:36:17,200
Speaker 1: their clients. Well, if the client doesn't know that, they're

607
00:36:17,239 --> 00:36:20,680
Speaker 1: getting screwed. I believe that's the technical term in the market.

608
00:36:20,760 --> 00:36:24,600
Speaker 1: So I hope nobody takes any offense. It wouldn't be

609
00:36:24,640 --> 00:36:28,040
Speaker 1: the first time it was said on all lots. Yeah,

610
00:36:28,080 --> 00:36:30,320
Speaker 1: I'll be more careful about some of the other technical

611
00:36:30,440 --> 00:36:34,040
Speaker 1: terms that are often bandied about in the markets. So

612
00:36:34,520 --> 00:36:39,440
Speaker 1: when the broker has a conflict of interest and the

613
00:36:39,480 --> 00:36:41,880
Speaker 1: client doesn't even recognize it, the broker is not going

614
00:36:41,880 --> 00:36:44,040
Speaker 1: to be too eager to change it because the broker

615
00:36:44,080 --> 00:36:45,839
Speaker 1: is going to act in their self interest, and their

616
00:36:45,840 --> 00:36:48,759
Speaker 1: self interest is usually too to go along and keep

617
00:36:48,800 --> 00:36:51,640
Speaker 1: things simple. And in some cases they even get paid

618
00:36:51,640 --> 00:36:53,600
Speaker 1: for order flow. But I don't think that happens in

619
00:36:53,640 --> 00:36:56,400
Speaker 1: the bond markets. That may be misinformed. So that's a

620
00:36:56,640 --> 00:36:59,680
Speaker 1: that's a potential problem. And then another potential problem was

621
00:36:59,760 --> 00:37:03,080
Speaker 1: this um uh. Economists call it the order flow problem,

622
00:37:03,120 --> 00:37:05,960
Speaker 1: but if you're just a regular person, you just know

623
00:37:06,040 --> 00:37:08,880
Speaker 1: it as a notion that liquidity attracts liquidity. And we

624
00:37:08,960 --> 00:37:12,319
Speaker 1: discussed it earlier when we talked about how difficult it

625
00:37:12,400 --> 00:37:15,120
Speaker 1: is to start a new market. You got a new

626
00:37:15,200 --> 00:37:20,360
Speaker 1: market exactly. It's a cracker jack market. But the problem

627
00:37:20,480 --> 00:37:24,000
Speaker 1: is is that it never gets off the ground until

628
00:37:24,000 --> 00:37:26,000
Speaker 1: people are willing to trade there. And they're not willing

629
00:37:26,000 --> 00:37:27,520
Speaker 1: to trade there because I've got to get their stuff

630
00:37:27,520 --> 00:37:30,400
Speaker 1: done right away. So that's it. That's a problem that

631
00:37:30,480 --> 00:37:33,560
Speaker 1: inhibits competition. We all may be better off with that

632
00:37:33,920 --> 00:37:36,760
Speaker 1: cracker jack market. You know, maybe it's an order driven

633
00:37:36,760 --> 00:37:39,600
Speaker 1: market with all the bells and whistles that will make

634
00:37:39,680 --> 00:37:42,879
Speaker 1: trading super efficient, like we see in the equity markets,

635
00:37:43,000 --> 00:37:45,720
Speaker 1: and then to a lesser extent in the options markets,

636
00:37:45,760 --> 00:37:49,960
Speaker 1: and certainly in the futures markets. We we may want

637
00:37:50,000 --> 00:37:51,919
Speaker 1: that and it could be better, but we may never

638
00:37:52,000 --> 00:37:56,680
Speaker 1: get there without the assistance of a regulator. So these problems,

639
00:37:57,040 --> 00:38:00,520
Speaker 1: agency problems and externalities see the fan see words that

640
00:38:00,600 --> 00:38:05,920
Speaker 1: economists know and use. These problems ensure that that free

641
00:38:05,960 --> 00:38:10,319
Speaker 1: markets don't often don't always produce competitive markets. And so

642
00:38:10,400 --> 00:38:14,239
Speaker 1: this is where political fossiphy can diverge. I am a

643
00:38:14,360 --> 00:38:17,280
Speaker 1: hundred percent in favor of free market, of free markets

644
00:38:17,920 --> 00:38:21,960
Speaker 1: when free markets produce competitive markets. But if a free

645
00:38:22,000 --> 00:38:25,840
Speaker 1: market is got problems like agency problems or externalities that

646
00:38:26,120 --> 00:38:29,200
Speaker 1: ensure that we don't get to the competitive solution, then

647
00:38:29,280 --> 00:38:32,960
Speaker 1: we need to have a very light hand that will

648
00:38:33,440 --> 00:38:37,600
Speaker 1: give a nudge. I'm avoiding the word that that nasty

649
00:38:37,640 --> 00:38:40,239
Speaker 1: word regulation, but to give a nudge to get us

650
00:38:40,280 --> 00:38:44,040
Speaker 1: to the right equilium, to get a structure that benefits everybody.

651
00:38:44,239 --> 00:38:46,520
Speaker 1: We should talk for a moment why we care about this.

652
00:38:46,719 --> 00:38:50,080
Speaker 1: Even though we have the very best markets in the

653
00:38:50,120 --> 00:38:54,040
Speaker 1: world in the bonds, they could still be substantially better,

654
00:38:54,080 --> 00:38:57,480
Speaker 1: and if they were better, we would all benefit. So

655
00:38:58,080 --> 00:39:02,280
Speaker 1: volumes would increase substantially, which ironically would benefit the dealers.

656
00:39:02,600 --> 00:39:06,719
Speaker 1: Transaction costs would drop, and uh we would you know,

657
00:39:06,800 --> 00:39:09,799
Speaker 1: people who are saving for the retirement would be able

658
00:39:09,880 --> 00:39:14,440
Speaker 1: to save more efficiently, and issuers would see lower issuance

659
00:39:14,480 --> 00:39:17,480
Speaker 1: costs because the cost of issuing a bond depends on

660
00:39:17,520 --> 00:39:20,440
Speaker 1: how liquid the market's going to be after you've issued

661
00:39:20,440 --> 00:39:23,200
Speaker 1: the bond. People don't want to pay so much for

662
00:39:23,239 --> 00:39:25,160
Speaker 1: a bond that will be locked up forever if they

663
00:39:25,239 --> 00:39:27,080
Speaker 1: need the money out, they don't want to lose a

664
00:39:27,120 --> 00:39:30,200
Speaker 1: lot trying to sell it. But if the bond looks

665
00:39:30,200 --> 00:39:32,280
Speaker 1: like it's going to trade in a highly liquid market,

666
00:39:32,320 --> 00:39:35,080
Speaker 1: they'll pay more for the bond. And when people pay

667
00:39:35,120 --> 00:39:39,239
Speaker 1: more for initial public offerings to bonds, when the corporations

668
00:39:39,280 --> 00:39:41,640
Speaker 1: are funding, it means they're funding costs are lower and

669
00:39:41,680 --> 00:39:44,399
Speaker 1: so that's good for them as well. So there are

670
00:39:44,440 --> 00:39:48,319
Speaker 1: a lot of really important and very valuable benefits that

671
00:39:48,320 --> 00:39:52,040
Speaker 1: are associated with making these markets that are markets. But

672
00:39:52,280 --> 00:39:55,160
Speaker 1: there are some strong vested interests. Give you a note

673
00:39:55,160 --> 00:39:59,640
Speaker 1: on a story about vested interests. So the SEC adopted trace,

674
00:39:59,760 --> 00:40:02,880
Speaker 1: we talked about it at length. At the same time,

675
00:40:03,200 --> 00:40:07,480
Speaker 1: the Canadian markets were faced with the same proposal and

676
00:40:07,520 --> 00:40:13,200
Speaker 1: they didn't do it. They since have adopted post trade transparency,

677
00:40:13,320 --> 00:40:15,200
Speaker 1: you know, to show you what the trade prices were,

678
00:40:15,480 --> 00:40:17,520
Speaker 1: but it took them ten fifteen years to do it.

679
00:40:18,040 --> 00:40:21,160
Speaker 1: And the reason perhaps was that the regulator there was

680
00:40:21,239 --> 00:40:24,319
Speaker 1: the Bank of Canada, and the Bank of Canada has

681
00:40:24,320 --> 00:40:28,520
Speaker 1: a close relationship with the large dealers and as a consequence,

682
00:40:28,600 --> 00:40:31,440
Speaker 1: they just didn't want to rock the boat. This despite

683
00:40:31,480 --> 00:40:35,960
Speaker 1: the fact that there's overwhelming evidence from America that the

684
00:40:35,960 --> 00:40:40,720
Speaker 1: world didn't end as some people suggested with those bond

685
00:40:40,760 --> 00:40:44,120
Speaker 1: prices being made public, and likewise, the world's not going

686
00:40:44,200 --> 00:40:48,160
Speaker 1: to end if bonds were traded in order driven systems,

687
00:40:48,440 --> 00:40:51,520
Speaker 1: because we see order driven systems trading similar instruments all

688
00:40:51,520 --> 00:40:54,000
Speaker 1: the time all throughout the world and in the United

689
00:40:54,000 --> 00:40:58,120
Speaker 1: States as well. So lots of fears about the end

690
00:40:58,160 --> 00:41:16,839
Speaker 1: of the world, but I'm not there. Well, can I

691
00:41:16,880 --> 00:41:21,120
Speaker 1: just ask one devil's advocate point on this idea of

692
00:41:21,360 --> 00:41:26,600
Speaker 1: regulation versus natural market evolution, And it kind of relates

693
00:41:26,640 --> 00:41:28,600
Speaker 1: back to something I said in the intro, which is

694
00:41:28,600 --> 00:41:31,480
Speaker 1: this idea that over the past year or so you

695
00:41:31,600 --> 00:41:35,920
Speaker 1: have seen something of an improvement or a migration in

696
00:41:36,080 --> 00:41:41,000
Speaker 1: the amount of bond trades that are actually electronic UM

697
00:41:41,040 --> 00:41:43,399
Speaker 1: and going through some of those platforms. So I think

698
00:41:43,400 --> 00:41:47,320
Speaker 1: I cited the Greenwich Associates data that had the number

699
00:41:47,360 --> 00:41:51,239
Speaker 1: of i G Investment grade bond transactions UM that were

700
00:41:51,280 --> 00:41:57,920
Speaker 1: electronic at UM currently versus something like less than at

701
00:41:57,960 --> 00:42:03,160
Speaker 1: the beginning of So something happened in UM, you know

702
00:42:03,239 --> 00:42:07,600
Speaker 1: the pandemic. You had the Federal Reserve buying corporate bond

703
00:42:07,760 --> 00:42:11,800
Speaker 1: e t s for the first time. Those two things

704
00:42:12,080 --> 00:42:17,799
Speaker 1: arguably have helped shift the market more than previous regulation

705
00:42:17,960 --> 00:42:21,880
Speaker 1: or some of these previous private efforts have done in

706
00:42:21,920 --> 00:42:24,680
Speaker 1: the past. So is there an argument to be made

707
00:42:24,719 --> 00:42:28,839
Speaker 1: that you could just let the bond market continue its

708
00:42:28,920 --> 00:42:35,719
Speaker 1: natural progression and maybe eventually people will change their behavior. UM.

709
00:42:35,840 --> 00:42:38,279
Speaker 1: Certainly you could make that argument. There's strong evidence that

710
00:42:38,840 --> 00:42:42,600
Speaker 1: this is what's happening, and it may continue to accelerate.

711
00:42:43,280 --> 00:42:46,799
Speaker 1: The two stories that you offered may have contributed. But

712
00:42:46,920 --> 00:42:49,880
Speaker 1: I think there was another story even stronger, which was

713
00:42:49,960 --> 00:42:54,040
Speaker 1: that as a result of Basil three UM, the large

714
00:42:54,080 --> 00:42:58,240
Speaker 1: banks came to be at a disadvantage to proprietary traders

715
00:42:58,239 --> 00:43:01,360
Speaker 1: when dealing bonds. And we can talk about what that

716
00:43:01,400 --> 00:43:07,040
Speaker 1: disadvantage was, but basically, when holding a bond portfolio, UH,

717
00:43:07,400 --> 00:43:12,000
Speaker 1: the banks have to hold more capital against the positions

718
00:43:12,280 --> 00:43:16,080
Speaker 1: than do proprietary traders have to hold. And as a consequence,

719
00:43:16,160 --> 00:43:19,399
Speaker 1: the banks could not compete as effectively as they had

720
00:43:19,520 --> 00:43:23,759
Speaker 1: competed before, which meant that a lot of the personnel

721
00:43:23,800 --> 00:43:27,520
Speaker 1: at those banks left and form their own proprietary trading

722
00:43:27,520 --> 00:43:31,120
Speaker 1: groups or joined other proprietary trading groups. And all of

723
00:43:31,160 --> 00:43:33,960
Speaker 1: a sudden, you have a core of highly skilled dealers

724
00:43:34,200 --> 00:43:39,640
Speaker 1: in a proprietary environment that want to make money, and uh,

725
00:43:39,760 --> 00:43:44,160
Speaker 1: they're electronically sophisticated. And I believe that it was probably

726
00:43:44,280 --> 00:43:49,080
Speaker 1: these guys who have made the electronic venues more liquid

727
00:43:49,320 --> 00:43:52,600
Speaker 1: and has given us that and I expect that that

728
00:43:52,600 --> 00:43:55,400
Speaker 1: will that trend will continue, and I think that's I

729
00:43:55,440 --> 00:43:58,640
Speaker 1: think that's a good thing. And indeed, if you look

730
00:43:58,640 --> 00:44:03,120
Speaker 1: at studies of spreads, we see that spreads have indeed

731
00:44:03,200 --> 00:44:06,160
Speaker 1: dropped in the bond markets because of the more competition

732
00:44:06,200 --> 00:44:10,279
Speaker 1: from these electronic entities. And there's of course two competitions

733
00:44:10,320 --> 00:44:12,080
Speaker 1: here that we want to promote both of them. There's

734
00:44:12,120 --> 00:44:15,080
Speaker 1: the competition for best price, which works best when you

735
00:44:15,080 --> 00:44:17,480
Speaker 1: put everybody in the same place. Best price means that

736
00:44:17,560 --> 00:44:20,360
Speaker 1: buyers looking for the lowest purchase price in the sellers

737
00:44:20,400 --> 00:44:23,080
Speaker 1: looking for the highest sales price. They also have the

738
00:44:23,120 --> 00:44:27,320
Speaker 1: competition to be the venue that hosts that competition, whether

739
00:44:27,360 --> 00:44:30,240
Speaker 1: it's an exchange or a broker, or just a dealer

740
00:44:30,320 --> 00:44:33,120
Speaker 1: who says, I'll take the other side and give you

741
00:44:33,160 --> 00:44:36,880
Speaker 1: the liquidity. So we like to have both competitions, but

742
00:44:37,000 --> 00:44:40,719
Speaker 1: the two competitions don't coexist particularly well with each other,

743
00:44:40,760 --> 00:44:45,719
Speaker 1: and the sec and over time has leaned towards promoting

744
00:44:45,719 --> 00:44:49,640
Speaker 1: one competition versus the other competition. And what's really interesting,

745
00:44:49,640 --> 00:44:51,759
Speaker 1: of course, is that anybody who has a position in

746
00:44:51,800 --> 00:44:55,200
Speaker 1: these markets about my position, I don't mean their bond position,

747
00:44:55,280 --> 00:44:57,480
Speaker 1: but I mean they're their opinion about how they should

748
00:44:57,480 --> 00:45:00,080
Speaker 1: be organized. Anybody has a such an a pain and

749
00:45:00,600 --> 00:45:05,359
Speaker 1: always cites their opinion is being pro competitive. So if

750
00:45:05,400 --> 00:45:08,120
Speaker 1: they want to see more centralization, they say they want

751
00:45:08,160 --> 00:45:11,040
Speaker 1: to see the competition for best price enhance. That's really good.

752
00:45:11,760 --> 00:45:15,000
Speaker 1: And if they want to see more competition among exchange

753
00:45:15,080 --> 00:45:17,799
Speaker 1: venues and so forth, they say, the system as it

754
00:45:17,920 --> 00:45:20,880
Speaker 1: is is really competitive and that's important, and it's created

755
00:45:20,920 --> 00:45:25,400
Speaker 1: the best markets that ever were now until recently, they

756
00:45:25,400 --> 00:45:27,440
Speaker 1: are now the best markets that ever were. But until

757
00:45:27,520 --> 00:45:32,359
Speaker 1: recently before these electronic innovations, those markets back in UH

758
00:45:33,000 --> 00:45:35,640
Speaker 1: in the nineties at the stock exchange, they were better.

759
00:45:36,280 --> 00:45:38,040
Speaker 1: And how much better would they be now that we

760
00:45:38,080 --> 00:45:40,719
Speaker 1: have computers that can handle those filing cabinets. You know,

761
00:45:40,760 --> 00:45:45,480
Speaker 1: it's just a database problem. So it's pretty darn interesting.

762
00:45:45,840 --> 00:45:49,359
Speaker 1: One other issue it love to share with you. Yes,

763
00:45:49,520 --> 00:45:54,640
Speaker 1: ses regulatory framework for small retail traders in the bond

764
00:45:54,680 --> 00:45:58,799
Speaker 1: markets is dealer centric. The assumption is that dealers are

765
00:45:58,840 --> 00:46:02,359
Speaker 1: doing all the trades. In contrast, in the equity mark

766
00:46:02,480 --> 00:46:06,720
Speaker 1: is the regulatory framework is broker centric. It revolves around

767
00:46:06,719 --> 00:46:10,600
Speaker 1: the brokers, and so the difference is that the brokers

768
00:46:10,600 --> 00:46:15,480
Speaker 1: are required to get best execution. And but when the

769
00:46:15,480 --> 00:46:18,960
Speaker 1: the brokers are acting as dealers to you, there's a

770
00:46:19,040 --> 00:46:22,680
Speaker 1: sort of a different relationship. But quite frequently now that

771
00:46:22,719 --> 00:46:26,760
Speaker 1: the markets are electronic and where you have venues where

772
00:46:26,920 --> 00:46:29,759
Speaker 1: quotes are being aggregated, or we have dealers who are

773
00:46:29,840 --> 00:46:35,680
Speaker 1: sharing their quotes directly with brokers. Quite frequently a broker

774
00:46:35,760 --> 00:46:41,280
Speaker 1: dealer who offers bonds to their clients takes no position whatsoever.

775
00:46:41,400 --> 00:46:45,480
Speaker 1: They do what's called a riskless principal trade, which means

776
00:46:45,520 --> 00:46:48,760
Speaker 1: that they buy from a dealer and they immediately sell,

777
00:46:49,040 --> 00:46:52,279
Speaker 1: usually marking it up to their client, and they'll show

778
00:46:52,320 --> 00:46:54,239
Speaker 1: the client what's available because they have a list of

779
00:46:54,239 --> 00:46:56,320
Speaker 1: what the dealers say is available, and the client chooses

780
00:46:56,320 --> 00:46:59,160
Speaker 1: what they want and being of the trade is done okay.

781
00:46:59,160 --> 00:47:03,240
Speaker 1: So there's no principal risk involved with that transaction because

782
00:47:03,280 --> 00:47:08,320
Speaker 1: the intermediary, the broker, is literally acting as a broker,

783
00:47:08,400 --> 00:47:11,760
Speaker 1: but is regulated as a dealer. So there's a type

784
00:47:11,840 --> 00:47:15,719
Speaker 1: mismatch here. And uh, if there's a good reason that

785
00:47:15,960 --> 00:47:21,040
Speaker 1: we regulate broker dealers primarily as brokers when doing ristless

786
00:47:21,080 --> 00:47:24,800
Speaker 1: principal trades, which is essentially what they do when clients

787
00:47:24,840 --> 00:47:29,040
Speaker 1: buy stocks or options or futures, why don't we regulate

788
00:47:29,080 --> 00:47:32,400
Speaker 1: them the same way when they're trading bonds. And the

789
00:47:32,440 --> 00:47:38,279
Speaker 1: answer of courses bonds are different, so, but but I

790
00:47:38,320 --> 00:47:41,959
Speaker 1: don't think they really are so different. There's one other

791
00:47:42,080 --> 00:47:45,480
Speaker 1: question that I wanted to ask you, which is about

792
00:47:45,680 --> 00:47:49,919
Speaker 1: Gary Gensler, the new SEC commissioner. And you know, we've

793
00:47:49,920 --> 00:47:53,120
Speaker 1: seen him come in and he's made a lot of

794
00:47:53,160 --> 00:47:58,560
Speaker 1: noise about focusing on things like crypto and payment for

795
00:47:58,719 --> 00:48:02,000
Speaker 1: order flow in the equity market. Um, and you know,

796
00:48:02,120 --> 00:48:06,040
Speaker 1: general retail stock trading issues um seemed to be high

797
00:48:06,080 --> 00:48:10,200
Speaker 1: on his agenda, but he has also spoken quite a

798
00:48:10,200 --> 00:48:14,840
Speaker 1: bit about price transparency in the bond market and maybe

799
00:48:14,920 --> 00:48:18,400
Speaker 1: some other um improvements that you could make to the

800
00:48:18,440 --> 00:48:21,680
Speaker 1: regulatory structure. And I'm aware that we haven't really spoken

801
00:48:21,680 --> 00:48:25,680
Speaker 1: about a t S at all or alternative trading systems,

802
00:48:25,680 --> 00:48:29,160
Speaker 1: But is this something that you would expect Gensler to

803
00:48:29,280 --> 00:48:32,160
Speaker 1: be looking at in the next year or so. Do

804
00:48:32,200 --> 00:48:34,480
Speaker 1: you get the sense that this is high on the

805
00:48:34,600 --> 00:48:39,279
Speaker 1: SEC's priority list given what happened with fim Sak, all

806
00:48:39,280 --> 00:48:42,359
Speaker 1: that happened under Film SAC and most importantly, the constitution

807
00:48:42,360 --> 00:48:46,319
Speaker 1: of the committee itself took place under a SEC that

808
00:48:46,400 --> 00:48:51,400
Speaker 1: was dominated by more conservative political interests. So now we

809
00:48:51,480 --> 00:48:55,800
Speaker 1: have an SEC that's now dominated by somewhat more liberal

810
00:48:55,800 --> 00:48:59,640
Speaker 1: political interests, and as a consequence, there is a potential

811
00:48:59,680 --> 00:49:03,880
Speaker 1: for change here. My impression though, is that this is

812
00:49:03,960 --> 00:49:08,160
Speaker 1: not his hot issue. There's a variety of reasons why,

813
00:49:08,200 --> 00:49:10,480
Speaker 1: but the evidence that it's not a hot issue is

814
00:49:10,520 --> 00:49:13,720
Speaker 1: that he still has not appointed a full time director

815
00:49:13,800 --> 00:49:17,600
Speaker 1: for the Division of Trading and UH. It is now

816
00:49:17,640 --> 00:49:19,880
Speaker 1: called the Division of Trading and Markets. It used to

817
00:49:19,880 --> 00:49:22,800
Speaker 1: be called the division of market Regulation. I misspoke earlier

818
00:49:22,800 --> 00:49:25,440
Speaker 1: when I mentioned that. So he still has an acting

819
00:49:25,480 --> 00:49:29,040
Speaker 1: director who seems quite competent, but a acting director just

820
00:49:29,040 --> 00:49:32,439
Speaker 1: doesn't have the same power as a director. And then

821
00:49:32,880 --> 00:49:37,600
Speaker 1: all of his regulatory people report to a person in

822
00:49:37,680 --> 00:49:41,920
Speaker 1: his office who doesn't have a strong background in market structure.

823
00:49:42,000 --> 00:49:45,320
Speaker 1: She's an attorney. Her last job was a deputy general

824
00:49:45,320 --> 00:49:48,680
Speaker 1: counsel for a f l C. I Oh, I've never

825
00:49:48,760 --> 00:49:51,120
Speaker 1: met her. I'm sure she's a wonderful woman, and I'm

826
00:49:51,120 --> 00:49:54,560
Speaker 1: sure she's a very fast learner, as almost all attorneys are,

827
00:49:55,280 --> 00:49:58,480
Speaker 1: and I can assue every attorney thinks they are. But

828
00:49:58,680 --> 00:50:01,839
Speaker 1: it's not the same thing. And so uh so, just

829
00:50:01,920 --> 00:50:05,960
Speaker 1: from those omissions, if you will, I'd suggest that perhaps

830
00:50:06,120 --> 00:50:11,120
Speaker 1: some market structure issues aren't high on his regulatory agenda. Now,

831
00:50:11,160 --> 00:50:13,680
Speaker 1: all that said, there's a lot of money involved in

832
00:50:13,719 --> 00:50:15,760
Speaker 1: these issues, and when there's a lot of money involved

833
00:50:15,760 --> 00:50:19,400
Speaker 1: in the issues, vested interests will lobby their senators, and

834
00:50:19,480 --> 00:50:22,880
Speaker 1: so they make contributions to senators, and senators look at

835
00:50:22,880 --> 00:50:26,000
Speaker 1: that and say, Hey, the US bond markets are the

836
00:50:26,040 --> 00:50:28,080
Speaker 1: best markets in the world. Why would we ever want

837
00:50:28,120 --> 00:50:31,160
Speaker 1: tom up with them? Because just because some you know,

838
00:50:31,280 --> 00:50:34,520
Speaker 1: academic who thinks he knows something tells us that it

839
00:50:34,520 --> 00:50:37,439
Speaker 1: could be better. Well, you know what, I just don't

840
00:50:37,480 --> 00:50:39,880
Speaker 1: see it. And so you know, if the SEC proposes

841
00:50:39,960 --> 00:50:43,120
Speaker 1: to do something, as senator writes the letters saying not

842
00:50:43,239 --> 00:50:46,600
Speaker 1: an opposition, but can you kindly explain why you're doing

843
00:50:46,640 --> 00:50:49,680
Speaker 1: what you're doing, And then in between the lines, which

844
00:50:49,760 --> 00:50:52,399
Speaker 1: is not written, it's uh oh. And by the way,

845
00:50:52,840 --> 00:50:57,040
Speaker 1: you may recognize that I sit on the the Finance

846
00:50:57,080 --> 00:50:59,640
Speaker 1: Committee and we set your budget. And from the tone

847
00:50:59,640 --> 00:51:01,719
Speaker 1: of let or there's a little bit of skepticism and

848
00:51:01,760 --> 00:51:05,680
Speaker 1: sort of everybody knows, what's what? Why do senators do this? Well,

849
00:51:05,880 --> 00:51:09,439
Speaker 1: they do care about the markets, but it's an abstraction.

850
00:51:09,480 --> 00:51:12,919
Speaker 1: It's far away from them. They can raise capital, which

851
00:51:12,960 --> 00:51:16,600
Speaker 1: is political contributions, cheaply and then spend it where it's

852
00:51:16,600 --> 00:51:18,560
Speaker 1: more dear to them, on the issues that are more

853
00:51:18,560 --> 00:51:22,360
Speaker 1: important to them, whether it be abortion or early childhood

854
00:51:22,719 --> 00:51:26,799
Speaker 1: education or armed forces or who knows what roads doesn't matter.

855
00:51:27,520 --> 00:51:30,480
Speaker 1: And so what you see is senators on both sides

856
00:51:30,800 --> 00:51:34,560
Speaker 1: have this tendency to be co opted by strong interests,

857
00:51:34,760 --> 00:51:37,200
Speaker 1: and so what you need is a very very strong

858
00:51:37,760 --> 00:51:42,399
Speaker 1: SEC that can make the case and explain how much

859
00:51:42,440 --> 00:51:46,040
Speaker 1: better things would be if we do all this, because

860
00:51:46,080 --> 00:51:48,080
Speaker 1: it's going to be painful. The SEC will end up

861
00:51:48,080 --> 00:51:51,239
Speaker 1: being sued. They'll be letters from senators, and at some

862
00:51:51,280 --> 00:51:54,799
Speaker 1: point the letters can be less than subtle. So you

863
00:51:54,840 --> 00:51:59,040
Speaker 1: need you need somebody who's really been empowered. We had that,

864
00:51:59,440 --> 00:52:04,680
Speaker 1: uh under Harvey Pitt, who was actually too outspoken, but

865
00:52:04,800 --> 00:52:10,720
Speaker 1: it continued under Donaldson, and that's when Reagan mis NMS

866
00:52:10,840 --> 00:52:14,200
Speaker 1: was adopted over the objections of the Republicans. And it

867
00:52:14,239 --> 00:52:17,480
Speaker 1: was odd that Donaldson, a Republican, actually voted with the

868
00:52:17,480 --> 00:52:21,000
Speaker 1: two Democrats to adopt Reagan MS, but that was perhaps

869
00:52:21,040 --> 00:52:24,560
Speaker 1: because he said was at the closer to the end

870
00:52:24,560 --> 00:52:26,640
Speaker 1: of his career than to the beginning of his career

871
00:52:26,719 --> 00:52:29,520
Speaker 1: and may have been thinking more as a statesman then

872
00:52:29,680 --> 00:52:32,799
Speaker 1: as somebody with vested interests. He also may not have

873
00:52:32,840 --> 00:52:35,000
Speaker 1: cared very much and just let staff do what they

874
00:52:35,000 --> 00:52:37,080
Speaker 1: wanted to do and they got away with it. But

875
00:52:37,239 --> 00:52:42,640
Speaker 1: it's it's difficult, no question about Yeah, I'm getting that sense, Larry.

876
00:52:42,719 --> 00:52:45,680
Speaker 1: This has been a fascinating conversation and I feel like

877
00:52:45,719 --> 00:52:49,800
Speaker 1: we could probably talk like all day potentially about SEC

878
00:52:50,040 --> 00:52:54,080
Speaker 1: history and some of the political mechanations there. But thank

879
00:52:54,080 --> 00:52:56,640
Speaker 1: you so much, really appreciate you coming on all thoughts,

880
00:52:57,320 --> 00:53:00,880
Speaker 1: Thanks for this opportunity to share some really important insights

881
00:53:00,920 --> 00:53:17,080
Speaker 1: with you and your audience. Figure So clearly I enjoyed

882
00:53:17,080 --> 00:53:21,000
Speaker 1: that conversation. It's always a joy for me to get

883
00:53:21,040 --> 00:53:24,279
Speaker 1: back to talking about corporate bond market structure, And of

884
00:53:24,320 --> 00:53:26,920
Speaker 1: course a couple of the things that stand out is

885
00:53:27,000 --> 00:53:32,920
Speaker 1: that tension between a regulatory push towards fixing these agency

886
00:53:33,080 --> 00:53:38,960
Speaker 1: problems that Larry described versus the natural development of the market.

887
00:53:39,840 --> 00:53:42,759
Speaker 1: And part of me thinks, like, yes, we've seen some

888
00:53:42,880 --> 00:53:46,000
Speaker 1: improvement over the past couple of years or so, but

889
00:53:46,080 --> 00:53:48,959
Speaker 1: there is still so much further to go in what

890
00:53:49,160 --> 00:53:52,680
Speaker 1: is one of the most important markets in the world,

891
00:53:53,520 --> 00:53:56,720
Speaker 1: and it's sort of amazing to me that there isn't

892
00:53:56,800 --> 00:53:59,239
Speaker 1: more of a spotlight shown on this particular issue. But

893
00:53:59,320 --> 00:54:01,200
Speaker 1: on the other hand, I thought Larry did a very

894
00:54:01,200 --> 00:54:04,279
Speaker 1: good job of explaining some of the political considerations that

895
00:54:04,400 --> 00:54:09,680
Speaker 1: going into formulating the SEC's uh sort of agenda under

896
00:54:10,400 --> 00:54:14,160
Speaker 1: various personnel and new commissioners, and so maybe that explains it.

897
00:54:14,200 --> 00:54:17,680
Speaker 1: I can't imagine that telling people that your regulatory focus

898
00:54:17,719 --> 00:54:21,359
Speaker 1: really needs to be on fixing credit markets? Um, is

899
00:54:21,440 --> 00:54:24,840
Speaker 1: that much of a sexy topic for a broader audience,

900
00:54:24,880 --> 00:54:28,399
Speaker 1: Although you know, certainly, on this particular podcast, we try

901
00:54:28,440 --> 00:54:31,200
Speaker 1: to make it one all right. Um. I think I'm

902
00:54:31,200 --> 00:54:32,880
Speaker 1: gonna leave it there because it's weird to talk to

903
00:54:32,880 --> 00:54:36,120
Speaker 1: myself without Joe. This has been another episode of the

904
00:54:36,160 --> 00:54:38,960
Speaker 1: All Thoughts podcast. I'm Tracy Alloway. You can follow me

905
00:54:39,200 --> 00:54:42,520
Speaker 1: on Twitter at Tracy Alloway. You can follow my co

906
00:54:42,640 --> 00:54:46,239
Speaker 1: host Joe Wisenthal. He is at The Stalwart. You can

907
00:54:46,280 --> 00:54:50,759
Speaker 1: follow our producer Laura Carlson. She is at Laura M. Carlson.

908
00:54:51,280 --> 00:54:55,240
Speaker 1: And you should follow Bloomberg Podcasts. They are at podcasts.

909
00:54:55,520 --> 00:55:02,400
Speaker 1: Thanks for listening to