In its comment letter, the BMA states that regulatory authorities should concentrate on keeping fixed-income markets open during times of emergency, rather than looking for authority to close them.

The Association is responding to a proposal from the The Municipal Securities Rulemaking Board that would give it regulatory authority to halt trading in the municipal bond market during emergencies.

Micah Green, president of The Bond Market Association, says: "In times of stress or damage to critical infrastructure, bond market participants should be permitted to trade, if they can, to provide liquidity to investors and to each other that is critical to our nation's economy and banking system."

In its comment letter, the Association notes that the MSRB's proposal, if granted, would be the first time trading halt authority would be explicitly given to a self-regulatory organisation instead of a government agency. The Association believes this would set a bad precedent and that the focus of the debate should be on the significant public policy issues surrounding the appropriateness of any trading halt in an over-the-counter market.

"The discussions should centre on what is in the best interest of the investing public and the nation's economic and financial system," insists Green. "Every other question is secondary."

The Association points out that over-the-counter bond trading is highly decentralised, with no single exchange floor or electronic platform.

"For a market regulator to simply halt trading, even if some participants have the capacity to continue operating, raises anti-competitive issues and reduces the incentive for firms to develop robust business continuity plans," states the BMA "Indeed, just the spectre of a trading halt could disrupt markets as participants close out positions they wouldn't want frozen. Perhaps the key question is why investors who wish to sell bonds, possibly to raise cash during the emergency, would be prevented from doing so."

The divisons emerged as the Bush administration stepped up the protection afforded to US financial market participants ahead of a potential war with Iraq. The US Treasury Department has circulated proposals for additional physical protection of critical financial institutions in the event of a terrorist attack, using either Federal personnel or National Guard troops.