FSA to check bond markets for transparency |
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Tue, 06 Sep 2005 11:05
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LONDON: Britain's market watchdog, the Financial Services Authority, intends to check the U.K. bond markets to verify if there are any market failures caused by lack of transparency. There are quite a number of bond deals that are carried out using telephone or over-the-counter.
The Authority has published a discussion paper titled Trading Transparency in the UK Secondary Bond Markets with a view to start a debate among market players which will help develop an appropriate policy on trading transparency in secondary bonds. This is timed ahead of the European Commission taking up the issue in early 2006 whether to extend equity market transparency rules, due to be introduced in April 2007, to other financial markets. The rules form part of the EU executive's Markets in Financial Instruments Directive, designed to create a single European Union-wide market for financial services.
Hector Sants, managing director for wholesale business at the Authority said the discussion paper aims at encouraging the development from first principles of a thoughtful approach to whether there is any need for increased transparency in the secondary bond markets. The exercise can also bring out instances of market failures resulting from lack of transparency in the U.K. and European Union bond markets.
Nearly 70 per cent of all international bond trading takes places in London and the Authority says most deals are unregulated, over-the-counter trades rather than being executed through an exchange.
The Authority feels that there is a need to establish whether there are any market failures in bond markets caused by insufficient transparency and which need to be remedied by new regulations. It cites the International Organisation of Securities Commissions asking member-country regulators to assess the appropriate level of transparency for their corporate bond markets.
In the U.S., a new transparency regime has been put in place for the secondary bond market with the implementation of a post-trade transparency system for corporate bonds, called the Trade Reporting and Compliance Engine or TRACE.
The Authority plans to conduct a round table with market participants and fellow European regulators on the issue.
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