Virtual Roundtable: Examining the Impacts of the COVID-19 Pandemic on U.S. Capital Markets

Video Description

Connect with the House Financial Services Committee Get the latest news: https://financialservices.house.gov/ Follow us on Facebook: https://www.facebook.com/FinancialDems/ Follow us on Twitter: https://twitter.com/FSCDems ________ On Tuesday, May 26 from 12:00 p.m. to 1:30 p.m. (EDT), the Investor Protection, Entrepreneurship, and Capital Markets Chairman Sherman and Ranking Member Huizenga hosted a virtual roundtable entitled, “Examining the Impacts of the COVID-19 Pandemic on U.S. Capital Markets,” with the following panelists: • Christopher Gerold, President, North American Securities Administrators Association and Bureau Chief of the New Jersey Bureau of Securities • Heather Slavkin Corzo, Head of U.S. Policy, Principles for Responsible Investment • Brett Palmer, President, Small Business Investor Alliance • Tom Quaadman, Executive Vice President, U.S. Chamber Center for Capital Markets Competitiveness Overview The Coronavirus Disease 2019 (COVID-19) pandemic has caused sudden and severe economic turmoil in the United States, resulting in a number of disruptions to the U.S. capital markets. These disruptions include the rapid spread of new COVID-19 based investment scams, unprecedented stock market volatility, and a sharp contraction in the availability of credit across securities markets. In response, the Securities and Exchange Commission (SEC), the Board of Governors of the Federal Reserve System (Federal Reserve or Fed), and the Department of the Treasury (Treasury) have pursued a variety of significant actions to maintain stability in U.S. capital markets and ensure that liquidity is broadly available. In addition, Congress passed the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act to support U.S. businesses and their employees throughout the pandemic and recovery. This memo summarizes the recent actions taken by the SEC and Fed, as well as a number of outstanding concerns. Impact of COVID-19 On U.S. Capital Markets Economic uncertainty generated by COVID-19 has led to a significant increase in market volatility and trading activity. In equity markets, trading volume has reached historic levels with the ten highest days of shares traded per day ever occurring in 2020. Stock market volatility as measured by the VIX index reached an all-time high of 82.7 on March 16, up from an average of 12.5 in January 2020. Stock market volatility has steadily declined since its peak in March but remains elevated with the VIX now at 28.16. This corresponds with a recent decline and partial recovery in stock prices. Between February 19 and March 23, the value of the S&P 500 fell from its all-time high by over 30 percent. The value of the index has since partially recovered, now down just 12.39 percent from its all-time high. Credit markets have seen a similar increase in trading activity and volatility as investors have tried to anticipate the economic impacts of COVID-19 on businesses, states, and local governments. This has been especially clear in corporate and municipal bond markets. This is demonstrated by an increase in daily municipal bond trades, which rose from approximately 34,000 in mid-February to an average of 50,000 in March with a peak of 75,000 per day on March 23. The number of corporate bond transactions has experienced a similar increase. As of May 4, average daily transactions in publicly traded corporate bonds have seen a 14 percent total increase in 2020 as compared to 2019. Similar to the stock market, much of this increased trading activity has represented a sell-off in assets by investors, especially in the weeks prior to the Fed announcing it would intervene to backstop credit markets. This pulling back by credit market investors quickly resulted in a spike in the cost of borrowing for corporate bond issuers.