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106th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 1st Session                                                    106-149

======================================================================



 
             BOND PRICE COMPETITION IMPROVEMENT ACT OF 1999

                                _______
                                

  May 18, 1999.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______


  Mr. Bliley, from the Committee on Commerce, submitted the following

                              R E P O R T

                             together with

                            ADDITIONAL VIEWS

                        [To accompany H.R. 1400]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on Commerce, to whom was referred the bill 
(H.R. 1400) to amend the Securities Exchange Act of 1934 to 
improve collection and dissemination of information concerning 
bond prices and to improve price competition in bond markets, 
and for other purposes, having considered the same, report 
favorably thereon without amendment and recommend that the bill 
do pass.

                                CONTENTS

                                                                   Page
Purpose and Summary..............................................     2
Background and Need for Legislation..............................     2
Hearings.........................................................     3
Committee Consideration..........................................     4
Roll Call Votes..................................................     4
Committee Oversight Findings.....................................     4
Committee on Government Reform Oversight Findings................     5
New Budget Authority, Entitlement Authority, and Tax Expenditures     5
Committee Cost Estimate..........................................     5
Congressional Budget Office Estimate.............................     5
Federal Mandates Statement.......................................     6
Advisory Committee Statement.....................................     6
Constitutional Authority Statement...............................     6
Applicability to Legislative Branch..............................     6
Section-by-Section Analysis of the Legislation...................     7
Changes in Existing Law Made by the Bill, as Reported............     8
Additional Views.................................................    11

                          Purpose and Summary

    The purpose of H.R. 1400, the Bond Price Competition 
Improvement Act of 1999, is to facilitate best execution of 
customer orders in the secondary market for debt securities by 
providing for improved price transparency of debt securities 
through last sale reporting and improved price competition in 
bond markets. Improved transparency will enable customers to 
better assess the quality of executions obtained for bond 
transactions. It also will encourage competition among dealers 
in bonds which will narrow the spreads charged to investors. 
These investors, in turn, will realize greater returns on their 
investments.

                  Background and Need for Legislation

    On September 29, 1998, the Subcommittee on Finance and 
Hazardous Materials held a hearing on competition in mutual 
fund fees and in bond prices. In that hearing, the Subcommittee 
heard testimony that transparency of corporate bond prices was 
poor. Specifically, testimony indicated that instances exist in 
which similarly situated investors purchasing the same 
quantities of the same bond from the same dealer pay 
substantially different prices for the bonds. Testimony also 
indicated that improved transparency would lead to improved 
bond prices for investors, and that increased transparency 
would assist the relevant regulators with development of an 
audit trail.
    The U.S. equity markets have been the subject of 
substantial attention of both the regulators and Congress. 
Stock trades on the New York Stock Exchange or the NASDAQ stock 
market are subject to immediate real time reporting of price 
and quantity. Investors know immediately what other investors 
are paying for the same security. That information is 
widelydisseminated through electronic and print media and is 
increasingly available to individual investors at little or no cost. 
The level of oversight and transparency in the bond market, 
particularly the corporate and municipal market, is substantially less 
than that in the U.S. equity markets. In the corporate and municipal 
market, dealers do not report the prices at which they sell bonds. This 
lack of ``last sale reporting'' makes it difficult for investors to 
determine if they are paying the best price for a bond. It also makes 
it difficult for them to value their portfolios with precision.
    The corporate bond market is dominated by five or six major 
bond dealers. Each of these dealers serves as the lead 
underwriter on a large number of corporate bond offerings each 
year. The dealer typically keeps an inventory of the bonds that 
it underwriters and makes a market for trading in the bond 
after its initial offering. A single dealer will often be the 
principal, if not the exclusive, source for investors wishing 
to buy or sell a particular bond in the secondary market. As a 
result, investors cannot comparison shop among dealers. 
Investors need greater price transparency so they can compare 
trade prices to other investors in order to monitor the quality 
of execution provided by the dealer.
    The undesirable consequences of the existing structure 
probably were best expressed in the following testimony by 
Larry E. Fondren, President, InterVest Financial Services, 
Inc., before the Subcommittee on Finance and Hazardous 
Materials on June 18, 1998:

          [T]he lack of price transparency in that [bond] 
        market forces investors and most broker-dealers to 
        gauge the current level of market pricing by calling a 
        number of dealers to solicit quotes before executing a 
        singe transaction--at what can only be hoped is the 
        best available price. This inefficient process limits 
        the number of potential counter-parties with which a 
        participant can trade, and constricts the ability of 
        participants to confidently discern current pricing 
        levels. As a result, liquidity is hindered and broad 
        competition among broker-dealers is thwarted. The 
        largest source of capital formation in the world is the 
        issuance and sale of bonds. Unlike stocks which are 
        sold directly to investors, the non-transparent, 
        inefficient structure of the current bond market 
        requires issuers to sell their bonds to a relatively 
        small group of dealers which buy from the issuers, as 
        principals, and subsequently sell to investors at 
        undisclosed prices. As issuers have no effective means 
        of discerning the prices at which existing bonds are 
        trading, a key benchmark for determining the price at 
        which their new bonds should be sold, they are unable 
        to accurately assess the fairness of the dealer bids 
        they receive--resulting in lower selling prices and 
        higher capital costs.

    Therefore, the Committee has determined, on the basis of 
the compelling record before it, that transparency in the bond 
market should be improved to better resemble that of the U.S. 
equity markets. The Committee believes that this improved 
transparency will facilitate price competition, better inform 
investors, and assist regulators in their oversight of the 
markets.
    The Committee notes that a number of initiatives to improve 
transparency in the bond market have been undertaken since the 
beginning of Committee hearings in this area. The Committee 
compliments the groups that have taken the lead in these 
important initial steps towards improved price transparency.

                                Hearings

    On June 18, 1998, the Subcommittee on Finance and Hazardous 
Materials held a hearing on electronic commerce. One of the 
witnesses, Mr. Larry E. Fondren, President, InterVest Financial 
Services, Inc., testified about the lack of price transparency 
in the bond markets and the negative consequences for issuers, 
investors, and the markets.
    On September 29, 1998, the Subcommittee on Finance and 
Hazardous Materials held a hearing on competition in mutual 
fund fees and bond prices. Witnesses at that hearing included 
The Honorable Arthur Levitt, Chairman of the Securities and 
Exchange Commission, accompanied by Mr. Barry P. Barbash, 
Director, Division of Investment Management and Mr. Richard R. 
Lindsey, Director, Division of Market Regulation, Securities 
and Exchange Commission; Mr. Charles A. Trzcinka, Professor of 
Finance, University of Buffalo, State University of New York, 
Jacobs Management Center; Mr. Harold Evensky, Certified 
Financial Planner, Evensky, Brown, Katz, & Levitt; Mr. Thomas 
Gardner, Co-Founder, The Motley Fool, Inc.; Mr. F. William 
McNabb, III, Managing Director, The Vanguard Group; Mr. A. 
Michael Lipper, Chairman, Lipper Analytical Services; Mr. 
Matthew P. Fink, President, ICI; Mr. Kenneth E. Volpert, 
Principal and Senior Portfolio Manager, The Vanguard Group; Mr. 
William H. James, Senior Vice President, Lazard Freres and 
Company on behalf of The Bond Market Association; Mr. Suresh M. 
Sundaresan, Professor, Columbia University School of Business; 
Mr. J. Patrick Campbell, Chief Operating Officer, The Nasdaq 
Stock Market, Inc.; Mr. Geoffrey Rosenberger, Managing 
Director, Clover Capital Management; and Mr. Frank R. Hoadley, 
Capital Finance Director, State of Wisconsin, Department of 
Administration. At that hearing, the Subcommittee heard 
testimony that transparency of corporate bond prices was poor. 
Testimony indicated that individual purchasers of the same bond 
from the same dealer were given prices that varied by as much 
as six percent. Testimony also indicated that improved 
transparency would lead to improved bond prices for investors.
    On March 18, 1999, the Subcommittee on Finance and 
Hazardous Materials held a hearing to consider the Committee 
draft language of H.R. 1400, the Bond Price Competition 
Improvement Act of 1999. The Subcommittee heard testimony from 
The Honorable Arthur Levitt, Chairman of the Securities and 
Exchange Commission, accompanied by Mr. Robert L. D. Colby, 
Deputy Director, Division of Market Regulation, Securities and 
Exchange Commission; Mr. J. Patrick Campbell, Chief Operating 
Officer and Executive Vice President, The Nasdaq Stock Market, 
Inc.; and Mr. Micah S. Green, Executive Vice President, The 
Bond Market Association. The testimony indicated that the 
legislation would facilitate more transparent markets for 
secondary trading of debt securities.

                        Committee Consideration

    On April 15, 1999, the Subcommittee on Finance and 
Hazardous Materials met in open markup session and approved 
H.R. 1400 for Full Committee consideration, without amendment, 
by a voice vote. On April 21, 1999, the Full Committee met in 
open markup session and ordered H.R. 1400 reported to the 
House, without amendment, by a voice vote, a quorum being 
present.

                             Rollcall Votes

    Clause 3(b) of rule XIII of the Rules of the House requires 
the Committee to list the recorded votes on the motion to 
report legislation and amendments thereto. There were no 
recorded votes taken in connection with ordering H.R. 1400 
reported. A motion by Mr. Bliley to order H.R. 1400 reported to 
the House, without amendment, was agreed to by a voice vote, a 
quorum being present.

                      Committee Oversight Findings

    Pursuant to clause 3(c)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee held legislative and 
oversight hearings and made findings that are reflected in this 
report.

           Committee on Government Reform Oversight Findings

    Pursuant to clause 3(c)(4) of rule XIII of the Rules of the 
House of Representatives, no oversight findings have been 
submitted to the Committee by the Committee on Government 
Reform.

   New Budget Authority, Entitlement Authority, and Tax Expenditures

    In compliance with clause 3(c)(2) of rule XIII of the Rules 
of the House of Representatives, the Committee finds that H.R. 
1400, the Bond Price Competition Improvement Act of 1999, would 
result in no new or increased budget authority, entitlement 
authority, or tax expenditures or revenues.

                        Committee Cost Estimate

    The Committee adopts as its own the cost estimate prepared 
by the Director of the Congressional Budget Office pursuant to 
section 402 of the Congressional Budget Act of 1974.

                  Congressional Budget Office Estimate

    Pursuant to clause 3(c)(3) of rule XIII of the Rules of the 
House of Representatives, the following is the cost estimate 
provided by the Congressional Budget Office pursuant to section 
402 of the Congressional Budget Act of 1974:
                                     U.S. Congress,
                               Congressional Budget Office,
                                    Washington, DC, April 30, 1999.
Hon. Tom Bliley,
Chairman, Committee on Commerce,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 1400, The Bond 
Price Competition Improvement Act of 1999.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contacts are Mark Hadley 
(for federal costs) and Jean Wooster (for the private-sector 
impact).
            Sincerely,
                                          Barry B. Anderson
                                    (For Dan L. Crippen, Director).
    Enclosure.

H.R. 1400.--Bond Price Competition Improvement Act of 1999

    CBO estimates that implementation H.R. 1400 would have no 
significant effect on the federal budget. The bill would 
require the SEC to adopt rules to assure that information about 
transactions involving certain debt securities is made 
available to the public on a timely basis. Such information 
would include price, volume, and yield. In addition, the bill 
would require GAO to conduct study of measures needed to 
improve information about transactions involving municipal 
securities and debt securities that are exempt the new SEC 
rules. Assuming availability of appropriated funds, we estimate 
the Securities and Exchange Commission (SEC) and the General 
Accounting Office (GAO) would spend less than $500,000 to 
implement the bill. H.R. 1400 would not affect direct spending 
or receipts; therefore, pay-as-you-go procedures would not 
apply.
    H.R. 1400 contains no intergovernmental mandates as defined 
in the Unfunded Mandates Reform Act (UMRA) and would not affect 
the budgets of state, local, or tribal governments.
    H.R. 1400 would impose a private-sector mandate, as defined 
by the UMRA, on the National Association of Securities Dealers 
(NASD). The NASD is a self-regulatory organization that issues 
rules governing practices by broker-dealer firms in the over-
the-counter market. CBO estimates that the cost of the mandate 
would not exceed the threshold established by UMRA ($100 
million in 1996, adjusted for inflation).
    This bill would require that the NASD broaden its current 
initiative to improve the transparency of the corporate bond 
market to include securities issued by government-sponsored 
enterprises (GSEs) and certain international financial 
organizations. Transparency in securities markets is the extent 
to which timely data on prices and transactions is visible and 
understandable to all market participants. Under this bill, the 
SEC would require that the NASD collect, process, distribute, 
and publish information (such as price, volume, and yield) 
about the purchase or sale of those securities. Based on 
information from the SEC and NASD, CBO estimates that the cost 
of this mandate would be well below the private-sector 
threshold.
    The CBO staff contacts are mark Hadley (for federal costs) 
and Jean Wooster (for the private-sector impact). This estimate 
was approved by Robert A. Sunshine, Deputy Assistant Director 
for Budget Analysis.

                       Federal Mandates Statement

    The Committee adopts as its own the estimate of Federal 
mandates prepared by the Director of the Congressional Budget 
Office pursuant to section 423 of the Unfunded Mandates Reform 
Act.

                      Advisory Committee Statement

    No advisory committees within the meaning of section 5(b) 
of the Federal Advisory Committee Act were created by this 
legislation.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds that the 
Constitutional authority for this legislation is provided in 
Article I, section 8, clause 3, which grants Congress the power 
to regulate commerce with foreign nations, among the several 
States, and with the Indian tribes.

                  Applicability to Legislative Branch

    The Committee finds that the legislation does not relate to 
the terms and conditions of employment or access to public 
services or accommodations within the meaning of section 
102(b)(3) of the Congressional Accountability Act.

             Section-by-Section Analysis of the Legislation


Section 1. Short title

    Section 1 provides the short title of the legislation, the 
``Bond Price Competition Improvement Act of 1999.''

Section 2. Extension of transaction reporting to debt securities

    Section 2 directs the Securities and Exchange Commission 
(SEC or the Commission) to use its existing authority under 
Section 11A of the Securities Exchange Act of 1934 (the 
Exchange Act) to adopt rules to assure the prompt, accurate, 
reliable, and fair collection, processing, distribution, and 
publication of transaction information, including last sale 
data, with respect to covered debt securities, so that such 
information is made available to the public.
    In determining the rules and other actions to be taken 
pursuant to this legislation, the Commission shall take into 
consideration, among other factors, private sector systems for 
the collection and distribution of transaction information on 
corporate debt securities. The SEC should consider not only the 
type of information reported by private sector systems, but 
also the mode and method of collection and dissemination used 
by private sector entities.
    Additionally, in making its public interest determination, 
the Commission is required to consider whether the action will 
promote efficiency, competition, and capital formation. The 
Committee expects the Commission to conduct appropriate cost-
benefit analysis of the proposed rules to the extent feasible 
given available data and the time limits imposed by the Act.
    The Committee intends that pricing information for debt 
securities be made available to the investing public so that 
the bond market enjoys the benefits of transparency enjoyed in 
the equity market.
    The section further provides that the subsection does not 
limit or alter Commission authority under other provisions of 
the Exchange Act. It also provides for definitions of relevant 
terms and for completion of required actions within one year of 
the enactment of the Act. Government securities, municipal 
securities, and other ``exempted securities'' as defined in 
section 3(a)(12) of the Exchange Act are excepted from the 
requirements of this legislation, as are any securities that 
the Commission determines by rule to except from these 
requirements.

Section 3. Technical amendment

    Section 3 makes technical changes to the definition of 
exempt securities. These changes are intended to require 
dealers to make prices available for debt securities issued by 
government sponsored enterprises. These changes are intended to 
affect only debt securities. These changes are not intended to 
affect the exemption from registration requirements enjoyed by 
securities issued by government sponsored enterprises or to 
impose any requirements on government sponsored enterprises.

Section 4. Studies

    Section 4 requires the Comptroller General to conduct a 
study of transparency in transactions in municipal securities 
and in debt securities as to which transaction information is 
collected but not disseminated pursuant to section 11A(d) of 
the Exchange Act.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italic, existing law in which no change is 
proposed is shown in roman):

SECURITIES EXCHANGE ACT OF 1934

           *       *       *       *       *       *       *



TITLE I--REGULATION OF SECURITIES EXCHANGES

           *       *       *       *       *       *       *



                  definitions and application of title

  Sec. 3. (a) When used in this title, unless the context 
otherwise requires--
          (1) * * *

           *       *       *       *       *       *       *

          (12)(A) * * *
          (B)(i) Notwithstanding subparagraph (A)(i) of this 
        paragraph, government securities shall not be deemed to 
        be ``exempted securities'' for the purposes of section 
        17A of this title.
          (ii) Notwithstanding subparagraph (A)(ii) of this 
        paragraph, municipal securities shall not be deemed to 
        be ``exempted securities'' for the purposes of sections 
        15 and 17A of this title.
          (ii) Notwithstanding subparagraph (A)(i) of this 
        paragraph, securities described in subparagraphs (B) 
        and (C) of paragraph (42) of this subsection shall not 
        be deemed to be exempted securities for purposes of 
        section 11A of this title.

           *       *       *       *       *       *       *


     national market system for securities; securities information 
                               processors

  Sec. 11A. (a)(1) * * *

           *       *       *       *       *       *       *

  (3) The Commission is authorized in furtherance of the 
directive in paragraph (2) of this subsection--
          (A) to create one or more advisory committees 
        pursuant to the Federal Advisory Committee Act [(which 
        shall be in addition to the National Market Advisory 
        Board established pursuant to subsection (d) of this 
        section)] and to employ one or more outside experts;

           *       *       *       *       *       *       *

  [(d)(1) Not later than one hundred eighty days after the date 
of enactment of the Securities Acts Amendments of 1975, the 
Commission shall establish a National Market Advisory Board 
(hereinafterin this section referred to as the ``Advisory 
Board'') to be composed of fifteen members, not all of whom shall be 
from the same geographical area of the United States, appointed by the 
Commission for a term specified by the Commission of not less than two 
years or more than five years. The Advisory Board shall consist of 
persons associated with brokers and dealers (who shall be a majority) 
and persons not so associated who are representative of the public and, 
to the extent feasible, have knowledge of the securities markets of the 
United States.
  [(2) It shall be the responsibility of the Advisory Board to 
formulate and furnish to the Commission its views on 
significant regulatory proposals made by the Commission or any 
self-regulatory organization concerning the establishment, 
operation, and regulation of the markets for securities in the 
United States.
  [(3)(A) The Advisory Board shall study and make 
recommendations to the Commission as to the steps it finds 
appropriate to facilitate the establishment of a national 
market system. In so doing, the Advisory Board shall assume the 
responsibilities of any advisory committee appointed to advise 
the Commission with respect to the national market system which 
is in existence at the time of the establishment of the 
Advisory Board.
  [(B) The Advisory Board shall study the possible need for 
modifications of the scheme of self-regulation provided for in 
this title so as to adapt it to a national market system, 
including the need for the establishment of a new self-
regulatory organization (hereinafter in this section referred 
to as a ``National Market Regulatory Board'' or ``Regulatory 
Board'') to administer the national market system. In the event 
the Advisory Board determines a National Market Regulatory 
Board should be established, it shall make recommendations as 
to:
          [(i) the point in time at which a Regulatory Board 
        should be established;
          [(ii) the composition of a Regulatory Board;
          [(iii) the scope of the authority of a Regulatory 
        Board;
          [(iv) the relationship of a Regulatory Board to the 
        Commission and to existing self-regulatory 
        organizations; and
          [(v) the manner in which a Regulatory Board should be 
        funded.
The Advisory Board shall report to the Congress, on or before 
December 31, 1976, the results of such study and its 
recommendations, including such recommendations for legislation 
as it deems appropriate.
  [(C) In carrying out its responsibilities under this 
paragraph, the Advisory Board shall consult with self-
regulatory organizations, brokers, dealers, securities 
information processors, issuers, investors, representatives of 
Government agencies, and other persons interested or likely to 
participate in the establishment, operation, or regulation of 
the national market system.]
  (d) Minimum Requirements for Transaction Information on Debt 
Securities.--
          (1) Action Required.--The Commission shall adopt such 
        rules and take such other actions under this section as 
        may be necessary or appropriate, having due regard for 
        the public interest, the protection of investors, and 
        the maintenance of fair and orderly markets to assure 
        the prompt, accurate, reliable, and fair collection, 
        processing, distribution, and publication of 
        transaction information, including last sale data, with 
        respect to covered debt securities so that such 
        information is available to all exchange members, 
        brokers, dealers, securities information processors, 
        and all other persons. In determining the rules or 
        other actions to take under this subsection, the 
        Commission shall take into consideration, among other 
        factors, private sector systems for the collection and 
        distribution of transaction information on corporate 
        debt securities.
          (2) Effect on other authority.--Nothing in this 
        subsection limits or otherwise alters the Commission's 
        authority under the other provisions of this section or 
        any other provision of this title.
          (3) Definitions.--For purposes of this subsection:
                  (A) Covered debt securities.--The term 
                ``covered debt securities'' means bonds, 
                debentures, or other debt instruments of an 
                issuer, other than--
                          (i) exempted securities; and
                          (ii) securities that the Commission 
                        determines by rule to except from the 
                        requirements of this subsection.
                  (B) Transaction information.--The term 
                ``transaction information'' means information 
                concerning such price, volume, and yield 
                information associated with a transaction 
                involving the purchase or sale of a covered 
                debt security as may be prescribed by the 
                Commission by rule for purposes of this 
                subsection.
                  (C) Factors in definitional rules.--In 
                prescribing rules pursuant to this paragraph, 
                the Commission shall take into consideration 
                the extent to which a security is actively 
                traded, market liquidity, competition, the 
                protection of investors and the public 
                interest, and other relevant factors.''.
  (b) Conforming Amendment.--Section 11A(a)(3)(A) of such Act 
is amended by striking (which shall be in addition to the 
National Market Advisory Board established pursuant to 
subsection (d) of this section)

           *       *       *       *       *       *       *


                            ADDITIONAL VIEWS

    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.

                                                   John D. Dingell.
                        Securities and Exchange Commission,
                                  Washington, DC, October 22, 1998.
Hon. John D. Dingell,
Ranking Member, Committee on Commerce, Rayburn House Office Building, 
        House of Representatives, Washington, DC.
    Dear Congressman Dingell: Thank you for your September 29, 
1998, letter regarding the corporate debt market hearings 
conducted on that day before the Subcommittee on Finance and 
Hazardous Materials. I appreciate your interest in the 
Commission's corporate debt initiative and your recognition of 
our commitment to achieving greater price transparency and 
investor protection in the corporate debt market.
    I am encouraged by the industry's response to the 
Commission's corporate debt initiative. As you observed, 
industry support for the initiative included The Bond Market 
Association. In moving forward on the proposal, we will work 
closely with both the industry and the NASD to implement the 
Commission's recommendations. As you have requested, we are 
happy to provide an annual progress report on our collaborative 
efforts to the Committee in September of each year through 
2003.
    Thank you again for your interest. Please do not hesitate 
to contact me or Richard Lindsey, Director, Division of Market 
Regulation, if we can be of further assistance.
            Sincerely,
                                           Arthur Levitt, Chairman.