Bond market receives respite from SEC rule that scares traders

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(Bloomberg) – The bond market received a three month grace period from a US rule that traders said could cause major disruption by preventing traders from providing certain price quotes.

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The Securities and Exchange Commission announced the relief in a letter posted on their website on Friday. The SEC regulation, which comes into effect next week, aims to rid the over-the-counter exchanges of companies that are late in disclosing financial information. It does this by prohibiting brokers from posting offers for companies that are often the targets of pump-and-dump systems and other misconduct.

The SEC has not exempted debt from regulation, creating fears among traders in recent months that traders would stop listing some bonds. The Securities Industry and Financial Markets Association and the Bond Dealers of America sent a joint letter to the SEC in August complaining that the new requirement could have “significant, harmful effects on fixed income securities.”

Read more: Big Bond Market Headache, Courtesy of the SEC

The SEC has provided the industry with what is known as a no-action letter, which means the regulator will not penalize bond traders for violating the regulation. The relief expires on January 3, the SEC said. In a statement on Friday, Sifma signaled that the SEC’s decision did not meet requirements.

“While we welcome the relief, we continue to believe that the rule that should be applied to fixed income securities should be changed to reflect the differences between fixed income and OTC stock markets,” said Sifma President Ken Bentsen. “We believe this process will take additional time.”

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