Corporate-bond brokers may face a squeeze on profits as regulators start publishing prices for almost $1 trillion of privately sold debt, if the past is any guide.
The Financial Industry Regulatory Authority, seeking to “foster more competitive pricing,” plans to start disseminating trading levels for securities issued under a rule known as 144a on its 11-year-old Trace system within the next year. That means the notes, sold only to institutional investors, will face the same price transparency as publicly registered corporate bonds for which buyers demand half a percentage point less in yield spreads. Brokers typically are paid larger fees from higher-yielding debt.
Firms from Knight Capital Group Inc. to Gleacher & Co. and Pierpont Securities LLC sold or shuttered credit units this year as corporate-bond trading volumes fell to the lowest proportion of the market on record and smaller price swings shrink potential profit margins. In the 90 days after Trace started disseminating prices of junk bonds, trading in the securities dropped 41 percent, according to Massachusetts Institute of Technology and Harvard University researchers.
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