FILS USA 2022: Market structure under microscope

Dan Barnes

There are a host of regulatory proposals out there that stand to have a material and practical impact on how fixed income markets operate, according to panellists on a Friday morning market structure panel at Fixed Income Leaders Summit in Nashville.   

Michael Winnike, Director, Market Structure at BlackRock.

Michael Winnike, director of market structure at BlackRock, cited the US Securities and Exchange Commission’s (SEC’s) proposal to expand the definition of dealer activity to any activity that generates liquidity. That could subject buy-side firms who are evolving to be more price makers and not just price takers, to more regulation and compliance costs. “This market  activity could be impacted,” Winnike said. 

There’s also a proposal to extend Regulation ATS to capture more trading and communications protocols. “The implications would be enormous for fintech” and could constrain innovation in the industry, Winnike said, 

James Wallin, AB
James Wallin, Senior Vice President at AllianceBernstein, talking to Dan Barnes.

James Wallin, Senior Vice President at AllianceBernstein, cited the regulatory review of cross trades, which occur when an investment advisor affects a trade between two or more of its advisory client accounts. Wallin said cross trading brings value to the fragmented fixed income market; rules should provide more flexibility, but indications are it will go in the other direction.

Winnike said the SEC has valid policy objectives and the regulator is well-intentioned; industry needs to help drive the framework by providing the details of to achieve the broader aims. 

“With the complexity and the pure number of rules, we have had to lean heavily on our partnerships with trade associations” such as SIFMA, to help shape the dialogue, Winnike said. 

Wallin said the buy side is more proactive in its communication with regulators than it was prior to Dodd-Frank 12 years ago, but there’s still room for improvement and the sector is not as active as the sell side. 

When asked their one market structure wish, Winnike said a consolidated tape would provide needed transparency; Wallin re-emphasized the need to get cross trading rules right.

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