US Markets

The SEC is taking a close look at the rise of electronic bond trading, Chairman Jay Clayton says

Key Points
  • The SEC has set up a special committee to look at the increased level of electronic trading in the bond market, Chairman Jay Clayton said.
  • Since the turn of the century the surge of bond trading platforms has made a dent in the traditional fixed income business.
  • Most of the trading is still done via phone call or chat services, but that is changing.
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The SEC is taking a close look at the rise of electronic bond trading, Chairman Jay Clayton says

The Securities and Exchange Commission is taking a close look at bond trading as the market becomes increasingly electronic, Chairman Jay Clayton said Wednesday.

While online stock trading platforms have been in business for decades, the bond market has been more traditional, with most of the activity still taking place by telephone or through chat services.

However, that's changed as more venues have arisen and fixed income investors become acclimated, however slowly, to the electronic world.

"What we are seeing is increased electronification, and our job is as trading changes to make sure that trading is efficient, that it's transparent and that our markets are resilient," Clayton told CNBC's Bob Pisani in a live interview on "Squawk on the Street." "As this electronification is coming to the fixed income market, we want to make sure that our regulations are keeping up with it and that we're getting those results."

The SEC has assembled a fixed income market structure advisory committee to look into the increased presence of electronic trading, a trend that Wall Street had resisted. Traders particularly in the $8.8 trillion corporate bond market prefer to be more discrete due to price sensitivity among those securities.

Big Wall Street banks also have been protective of their roles as facilitators in bond market trading. However, since the turn of the century the surge of bond trading platforms has made a dent in the traditional fixed income business, about 80 percent of which is still done through the old means of phone calls and chat.

Leaders in the new wave include MarketAxess, Tradeweb, Trumid and Liquidnet.

Clayton said the commission will be watching the developments closely to make sure the market remains efficient and transparent.

"Today's equity market is much more efficient than the equity market of 20 years ago," he said. "Is there room for improvement? There always is, and we're looking at it. But I want to make sure the same things happen in the bond market."