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DERA Report Examines Regulatory Reforms’ Impact on Market Liquidity, Access to Capital

The SEC’s Division of Economic and Risk Analysis recently released a paper in response to a Congressional directive to report on the Dodd-Frank Act and other financial regulations’ impact on market liquidity and access to capital for consumers, investors, and businesses. The DERA report concluded that evidence was mixed regarding the direction and magnitude of changes in primary market securities issuance and secondary market liquidity after the financial crisis and ensuing regulatory reforms. Further, the report indicated that the observed changes could be attributed to several explanations, including the combined effect of various regulations and a low interest rate environment. The wide-ranging report examined the issuance of debt, equity and asset-backed securities, and secondary market liquidity in U.S. Treasuries, corporate bonds, single-name credit default swaps and bond funds, from the early 2000s through 2016. The report also identified trends for unregistered offerings, as well as fixed-income transactions, fixed-income quotations, and broker-dealer financial positions. The report found, among other things, that total primary market securities issuance was not lower after the enactment of the Dodd-Frank Act and may have increased around the implementation of the JOBS Act. Additionally, evidence for the impact of regulatory reforms on market liquidity was mixed, with different measures of market liquidity showing different trends. For example, in the U.S. Treasury markets, DERA reported it found no empirical evidence to conclude that market liquidity deteriorated after the regulatory reforms.