IOSCO calls for enhanced corporate bonds transparency

Regulatory changes are needed to reflect a more diverse market underpinned by rapidly evolving technology, says global watchdog

Measures to enforce transparency within the corporate bonds market must be enhanced and updated for a new era, according to the International Organization of Securities Commissions (IOSCO).

In the watchdog’s view, changes are required to ensure that national and regional regulations are in step with the market’s technological evolution, and its increasingly diverse trading landscape.

Unveiling a consultation towards those changes on 14 August, IOSCO pointed out that several transparency issues had emerged during its recent exploration of corporate-bonds liquidity – the results of which were published in a report in March this year.

In particular, IOSCO noted, it had identified:

  1. Disparities in available regulatory data The extent of reporting differs between jurisdictions, especially with regards to certain OTC trading activities. As a result, there may be less data available to monitor the market, analyse trends or develop policy on a global basis.
  2. A lack of consistency in standards across jurisdictions Including differences in the data sources, characteristics and methods of delivery.

IOSCO notes that, in the 13 years since it last set standards for corporate bonds transparency, a range of game-changing developments have impacted the market. These include:

  • an increase in corporate bond market issuances in most IOSCO member jurisdictions;
  • evidence of a shift from the traditional dealer-based principal model to an agency-based model – with some dealers decreasing their trading presence and capital allocation in certain products;
  • an increase in indirect retail participation in the corporate bonds market, via mutual funds and exchange-traded products; and
  • technological advancements that have spurred the emergence of different types of electronic trading platforms designed to provide alternative methods for seeking liquidity.

As such, the consultation aims to:

  1. Examine data-reporting requirements in corporate bond markets, highlighting the regimes in place and finding out how the data is used to help regulators monitor and analyse markets. This will stimulate discussion around the need for clarity and data availability within member jurisdictions’ reporting frameworks and methodologies.
  2. Explore jurisdictions’ current and proposed regulatory requirements related to public pre-trade and post-trade transparency that have emerged since the publication of IOSCO’s 2004 standards. What are their potential impacts upon market liquidity, and which steps have regulators and legislators taken to address those potential impacts?
  3. Develop recommendations for regulators that will serve to update the 2004 standards in ways that reflect current corporate bond markets and regulatory frameworks.

IOSCO says in the consultation: “It is important to highlight the jurisdictional differences in the application of corporate bond reporting and transparency requirements. In particular, jurisdictions may have different triggers.

“For example, in the EU, most corporate bonds are listed (due to regulatory incentives), although they are traded OTC. The application of reporting and transparency requirements, however, is triggered on the basis of whether a bond is admitted to trading on a trading venue.

“Accordingly, when an OTC trade occurs in a bond that is admitted to trading on any EU trading venue, the reporting and transparency requirements in Europe will be applicable under MiFIR.”

By contrast, IOSCO notes: “In the US and Canada, most corporate bonds are unlisted and trade OTC. The reporting and transparency requirements apply to these bonds. Bonds that are listed, however, typically follow the reporting and transparency requirements of the trading venue upon which they trade.

“Recognising certain differences in application, this consultation report outlines the jurisdictions’ requirements as they apply to listed and unlisted corporate bonds.”

Find the full consultation here.

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