Junk Bond Dealers Agree to Greater Public Scrutiny

The much-maligned junk bond market is about to undergo some changes that should make it easier for investors and regulators to find out what’s going on.

Bowing to pressure, Wall Street bond dealers have agreed on a plan that allows easier access to price and market information about high-yielding corporate bonds.

The National Assn. of Securities Dealers, which runs the over-the-counter stock market, is overseeing the creation and operation of two electronic systems designed to usher in a new era of openness in the $200-billion junk bond market.

Junk bonds offer high returns but higher risk. The market boomed in the 1980s under the tutelage of Michael Milken, but prices have fallen sharply as the recession has hit, leaving some investors with huge losses.

One of the new systems--the Fixed Income Pricing System, or FIPS--will give investors a more up-to-date picture of prices and trading activity.

The other as-yet-unnamed system will permit the NASD, a self-regulatory group, to gather more trading data from dealers so it can better police the junk market, which has been hit by charges of insider trading.

“We will have much more timely and current information that we can act upon,” said NASD President Joseph Hardiman, who expects that the systems will be on line later this year.

A group of dealers and brokers--including Merrill Lynch & Co., Morgan Stanley & Co. and First Boston Corp.--finally told the NASD in a letter late last month that they agreed to the principles underlying FIPS and the trade reporting system.