FSA Examines Transparency In Bond Markets

by Robin Pilgrim, LawAndTax-News.com, London

07 September 2005

The FSA on Monday published a Discussion Paper on Trading Transparency in the UK's Secondary Bond Market, which examines whether there is a need for the provision of greater pre- or post-trade price information in the secondary bond markets.

The paper aims to stimulate debate amongst market participants in order to enable the FSA to develop an appropriate policy in respect of trading transparency in the secondary bond markets, particularly in advance of the European Commission's consideration of the issue, expected to begin early in 2006.

The paper does not, however, propose any new rules in this area.

Hector Sants, the FSA's Managing Director for Wholesale Business, explained that:

"The FSA is publishing this paper now in order to encourage the development from first principles of a thoughtful approach to whether there is any need for increased transparency in the secondary bond markets. "

He continued:

"In developing our views we will look in particular at the current role of transparency, and whether there are any possible market failures caused by a lack of transparency in the UK and EU bond markets. We will also be seeking views on the practicalities of any regulatory change in this area."

"We are mindful of the importance of the bond markets to the UK, for investors, issuers and as a leading trading centre, and a key objective in undertaking this work is to ensure that the UK contributes constructively to the Commission's review of whether the scope of the MiFID transparency regime ought to be extended to the bond markets."

MiFID will introduce, in April 2007, a comprehensive pan-European Union transparency regime for the trading of shares on EU regulated markets. Initially this will apply only to shares but the European Commission is required by the Directive to consider whether the scope of these requirements should be extended to other asset classes including bonds.

The FSA believes there is a need to establish in the first instance if there are any market failures in bond markets being caused by insufficient transparency which need to be remedied by new regulations.

As part of its follow up to publishing the paper, the FSA will host a roundtable with market participants and fellow European regulators, who will be invited to discuss these issues further.

Recommended