At the end of last week, SEC Chair Jay Clayton addressed the Financial Stability Oversight Council, focusing on three areas: market function, market monitoring and corporate and other issuer disclosure. Early in his remarks, Clayton praised the efforts of FSOC “to preserve the flows of credit and capital in our economy[, which] have substantially mitigated the economic consequences of COVID-19.” He noted in particular that “the rapid fiscal, monetary and financial regulatory response to market and economic effects of COVID-19 has been both remarkable and appropriate.” However, it was the data he provided on market functioning and volatility that was most revealing.
In his remarks, Clayton shared the following statistics about market functioning:
- “From the equities perspective, the ten highest days by notional volume or trade count—of all time—occurred in 2020. In 2019, the average daily volume was 7.0 billion shares per day; on the last day of February 2020, we observed the second most shares traded ever, 19.3 billion shares. In May, the average has dropped slightly—but is still relatively high at 10.5 billion shares per day.
- Equities volatility has also been high. For example, the ‘VIX’ Index provides an options market-based measure of expected future volatility. At the beginning of January 2020, the VIX value was 12.5. On March 16, it reached an all-time high of 82.7. Earlier this week the VIX reached 33.04.
- The volume and volatility story is similar in the corporate and municipal bonds markets. The average number of daily municipal bond transactions in mid-February was approximately 34,000. That number increased to 50,000 transactions per day in March, and on March 23 reached 75,000 per day.”
Notwithstanding “this time of unprecedented stress,” Clayton reported, “we have observed no systemically adverse operational issues with respect to our key infrastructure,” So far, “the ‘pipes and plumbing’ of the securities markets—i.e., the clearing agencies, exchanges, ATSs and securities information processors, among other things—functioned largely as designed, and importantly, as market participants would expect.”
With regard to corporate disclosure, he reiterated his theme that current uncertainties have led investors to thirst for more information, contending that “the timely disclosure of high-quality information—be it positive, negative or neutral and be it definitive or lacking certainty—increases credibility and has a generally calming value that contributes to market function, and in turn, reduces the potential for system risk.”