The Asset Management Group of the Securities Industry and Financial Markets Association (“SIFMA AMG”) brings the asset management community together to provide views on U.S. and global policy and to create industry best practices. SIFMA AMG’s members represent U.S. and global asset management firms whose combined assets under management exceed $45 trillion. The clients of SIFMA AMG member firms include, among others, tens of millions of individual investors, registered investment companies, endowments, public and private pension funds, UCITS and private funds such as hedge funds and private equity funds. For more information, visit https://www.sifma.org/committees/amg/.

Our members include market participants in the corporate bond market, and we welcome the opportunity to provide feedback on IOSCO’s discussion paper on this topic.

General comments on the context of the Discussion Paper

The global corporate bond market is estimated to be worth approximately $130trn and comprises around a third of the total world marketplace in fixed income securities. Its economic contribution to employment, growth and real incomes is significant.

In the U.S., the corporate bond market grew from $11.1 trillion in 2010 to $16.2 trillion in 2020 and the amount of corporate bonds held by registered investment companies rose from $1.5 trillion to $3.5 trillion – or from 14 percent in 2010 to 22 percent in 20201. Investors buy corporate bonds for various reasons: attractive and predictable returns, dependable income, flexibility, and diversification.

We broadly agree with IOSCO’s view that ‘corporate bond markets are an important part of the global capital markets and play a key role in financing the real economy’ and that achieving ‘fair, efficient and transparent functioning of these markets’ and ‘reducing systemic risk’ are sensible goals. In terms of exploring ‘possible ways to help improve market functioning and liquidity provision’ it is vital any proposals – if they are forthcoming – are developed carefully and consultatively. In particular, IOSCO notes ‘the potential unintended consequences from any prospective market changes’ and such effects would be critical to have identified and evaluated.

In this context, we also ask IOSCO to recognize the significant volume of regulatory and related proposals that the global asset management industry is presently processing. In the United States, the Securities and Exchange Commission (“SEC”) is pursing what Bloomberg described as “one of the most ambitious agendas in the SEC’s 87-year history”. In the UK, the post-Brexit environment underpins a robust and extensive financial services agenda which includes potential changes to the UK regime derived from the Markets in Financial Instruments Directive (“MiFID”) which primarily governs secondary bond trading. In the EU, there are significant regulatory initiatives in development, including amendments to the EU’s MiFID regime. Everywhere, regulators and policymakers are re-calibrating laws and regulatory rulebooks as climate changes and sustainable growth have moved center-stage.

Moreover, just as the world is coming out of a once in 100-year pandemic, still uncertain what the “new normal” will be, we are now facing considerable economic headwinds. Inflation has climbed to a 40-year high. Interest rates are rising. Geopolitical events threaten to upend how the global economy has functioned for decades. Supply chain disruptions persist. Bottom line: while the worst of COVID appears behind us, there are a lot of unknowns in the world today.