Sifma 'consistently reviews' policies, will announce holiday changes; traders favor current system

By Jennifer Lanning Drey

Portland, Ore., Feb. 27 - The Securities Industry and Financial Markets Association regularly reviews its policies and will announce changes in due course if it decides to modify its early or full-close recommendations, the association told Prospect News in a Friday statement.

The statement was made in response to a request from the Regional Bond Dealers Association that Sifma end its practice of recommending early bond market closes on days preceding U.S. holidays.

Meanwhile the reaction from traders and other market participants to the letter from the RBDA was uniformly negative.

One investment banker said the current early closes ahead of holidays are no big deal.

Another said of the regional dealers' letter: "What idiot thought that up?"

"Sifma appreciates input from outside parties involved in market issues and values hearing others' opinions," the association said when asked about the request by Prospect News.

"Sifma consistently reviews its policies on various market practices with the goal of ensuring orderly and liquid markets. If Sifma makes changes to its early or full-close recommendations, we will announce those changes in due course."

As previously reported, RBDA's co-chief executive officers sent Sifma a letter suggesting that early closings severely hamper market liquidity, which is particularly challenging in the face of the difficult credit conditions investors continue to encounter.

"Closing the bond markets early on the last business day before a holiday serves no useful purpose," Michael Decker, co-chief executive officer of RBDA, said. "In these unprecedented times, we need to do everything we can to improve market liquidity, not get in the way."

The U.S. Treasury Department asked Sifma earlier this year to reduce the number of early closes, according to a RBDA news release.

Traders and others in the market surveyed by Prospect News were mostly in favor of the current system - and several were less diplomatic than Sifma.

One trader called RBDA's request "a crock."

"Certainly liquidity is hampered by unexpected events," he said. For example, if the market were to close early out of the blue, then there would be some trading issues.

"I don't honestly think an early close has any effect," he added. "I think people get their business done."

Furthermore, he said that if regulators were to look closely at volumes on Fridays in general between 8 a.m. ET and 3 p.m. ET and then at volumes between 3 p.m. ET and 5 p.m. ET, there would be an "infinite" difference, indicating that removing early closes would make little difference.

'Huge negative' for morale

One high-yield trader opined that "RBDA and Sifma should focus their time and energy doing something useful, rather than trying so hard to be P.C. [politically correct] during these difficult times."

He continued that "the reality is that most transaction-oriented participants generally get their books in order with the holiday in mind and as a consequence, market activity naturally slows as we get closer to [the holiday].

"Keeping people in their seats until 5 p.m. prior to a holiday will not necessarily increase trading - but it will have a huge negative effect on the general well-being and morale of a group already singled out as pariahs," in light of the recent attacks on Wall Streeters by the president and various other politicians, and the media.

Other traders took a less combative tone but agreed with the general idea that the early closing system should be retained.

One said there was no sense having people in for a full day because "market liquidity stinks before holidays because every bank or dealer wants positions as light as possible and no one wants to add anything in front of a long weekend. Furthermore, most of the clients have already left their offices by the time the markets close."

He noted that "other industries give people the entire day after Thanksgiving and, in many cases, if Christmas is on a Thursday," as it was this past year, "they give the following Friday off" as well.

Yet another said that the early close is "helpful if you want to leave early. Most times, the Friday [or other day] before a holiday is quiet and most shops are skeleton-staffed anyway."

'Critical information'

However, one trader took something of a contrarian position, arguing that he does not believe that half-sessions ahead of holidays "are necessarily a good idea, because some critical information could be missed."

Having said that, however, he allowed that "most decision-makers are used to leaving early," so not much is going to get done.

A market source who is not a trader observed that "in terms of liquidity and business, if you are institutional, there will always be liquidity in the bigger names."

He noted that the Regional Bond Dealers "are typically very retail-based and hence more odd-lot based - I'm sure liquidity goes down for them the day before the holiday."

However, he also pointed out that "many of their clients are also gone anyway. Hence, there's less trading, which means less volume, which means less liquidity."

At his shop, "those days are treated like a typical Friday in the summer: all business unofficially ceases sometime between noon and 1 p.m. anyway - with or without an early sanctioned close."

Paul Deckelman, Paul A. Harris and Stephanie N. Rotondo contributed to this report.

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