Today’s bond markets play a crucial role in our economy. While New York Stock Exchange equity trading amounts to $28 billion per day, trading volume in all bond markets totals roughly $350 billion per day. The total value of the bond market today is over $10 trillion -- up approximately 400 percent since 1980. The debt market is primarily an over-the-counter principal market, although some debt does trade on the New York Stock Exchange’s Automated Bond System.

The Committee did not begin examining these issues in the 105th Congress. The Bond Price Competition Improvement Act completes work begun by this Committee 24 years ago.

In 1975, Congress adopted the Securities Amendments which directed the Securities and Exchange Commission (SEC) to facilitate the establishment of the National Market System. Among other things, in fashioning Section 11A of the Exchange Act, we asked the SEC to assure the availability to brokers, dealers, and investors of information on quotations for and transactions in securities. Since then the SEC has pushed for increased transparency in the equity markets. This has resulted in the establishment of the consolidated quotation system, the consolidated transaction tape, and the Intermarket Trading System, helping to make our securities markets the most transparent and liquid in the world.

In the 1980s, under the leadership of this Committee’s Subcommittee on Telecommunications and Finance, and its distinguished chairman Ed Markey, Congress passed landmark government securities legislation that, in part, addressed the lack of transparency in that segment of the bond market. In 1991, the industry responded with GovPX, a 24-hour, global electronic reporting system for U.S. Treasury and other government securities.

In the fall of 1993, that subcommittee held comprehensive hearings on the municipal securities market. Chairman Markey observed at the close of those hearings that: "I have little sympathy for those who would keep information about quotes, trades, prices, and markups in the dark, away from investors. Markets are more efficient, more fair and more liquid when investors can readily determine how much a security costs." The subcommittee challenged the SEC and the market to respond to this need, and promised carefully targeted and bipartisan legislative reforms if they failed to do so.

In 1995, the Municipal Securities Rulemaking Board (MSRB) started collecting data on dealer-to-dealer transactions in the municipal bond market as well as disseminating daily summary reports. In 1998, the MSRB added coverage of customer trades to this system. I should note that in 1994 the National Association of Securities Dealers (NASD) established the Fixed Income Pricing System which covers some but not all high-yield corporate bonds.

In March 1998, SEC Chairman Arthur Levitt asked the Division of Market Regulation to begin a review of the U.S. debt markets. The SEC debt market review concluded that: 1) the markets for benchmark U.S. Treasury bonds are "highly" transparent; 2) the market for other U.S. Treasuries and Federal agency bonds, that trade in a stable relationship to benchmark Treasuries, had a "very good" level of pricing information; 3) the markets in mortgage backed securities, and other structured products such as collateralized mortgage obligations and asset backed securities, generally have a "good" level of price transparency; 4) price discovery is "necessarily difficult" in the municipal market -- the market is highly fragmented and regionalized, and is characterized by an extremely large number of issues and issuers with relatively small trading volume -- but expectations are that the MSRB’s transparency initiatives will result in improvements; 5) the market in high yield corporate bonds is generally characterized by a "relatively poor" level of price transparency; and 6) the market in investment grade bonds was said to have a "fairly good to fair level of price transparency." (Memorandum from Richard R. Lindsey, Director of the Division of Market Regulation to SEC Chairman Arthur Levitt regarding the Debt Market Review, pp. 2-4.)

In September 1998, SEC Chairman Arthur Levitt, observed that "investors have a right to know the prices at which bonds are being bought and sold [and] that transparency will help investors make better decisions and will increase confidence in the fairness of the markets." The SEC chairman charged the NASD with developing a system for dissemination of information on corporate bond market transactions and prices to investors and to create a database to enhance surveillance and enforcement in this market. The NASD is developing a proposal to gather all trade reports on corporate bonds and make information available on an immediate basis.

In December 1998, the Bond Market Association announced that, due to industry concerns about imminent Congressionally-mandated and SEC-mandated price transparency initiatives, it was implementing an industry-sponsored, market-based "voluntary initiative" to collect price data on investment grade corporate bonds from interdealer brokers and to disseminate that data to the public and to market regulators for surveillance purposes.

Following last summer’s electronic commerce hearings, I wrote to SEC Chairman Levitt and Chairman Oxley supporting subcommittee hearings and regulatory efforts to address this problem. Following last fall’s hearing on bond price competition, I wrote to the SEC and the NASD asking for annual reports through 2003 on their progress in improving the availability of corporate and other bond price information. The SEC has undertaken to provide such reports. A copy of the SEC’s letter accompanies these views.

I commend all the ongoing efforts to improve price transparency in the debt markets. I am pleased to support this legislation and I would urge all my colleagues to do the same. It continues this Committee’s proud tradition of supporting full disclosure and the protection of investors, and it will have significant benefits for the economy.

I also commend Chairman Bliley of the full Committee and Chairman Oxley of the Finance Subcommittee for their strong leadership on this legislation. I thank them for working with Democratic Members, the federal regulators, and the bond industry to fashion a focused, balanced, bipartisan bill that is cosponsored by the Democratic Members of the subcommittee and myself.