Call for regulatory reform of primary markets


By Chris Hall.

Panellists were split on whether regulatory intervention is needed to improve transparency and efficiency in a debate on electronification and standardisation of primary market issuance.

Cathy Gibson, RLAM

“There is little or no transparency on how allocations are derived. Regulators have been focused on best execution, but they should have also looked at the transparency of the allocation process because it is not clear, fair or efficient,” said Cathy Gibson, head of fixed income trading at Royal London Asset Management.

Fellow panellists expressed hope that a market-led approach could lead to a greater automation and standardisation of existing workflows related to the book-building and allocation of primary issues.

Herb Werth, Ipreo

“There are areas where it would help to have a more prescriptive description of how to do things, but that could come from the market rather than the regulator,” said Herb Werth, managing director at Ipreo.

Juan Landazabal, GAM Investments

Juan Landazabal, global head of trading at asset manager GAM Investments, also voiced preference for self-regulation. “If we can sort out identifiers and deal announcements, we’d be well on the way to greater efficiency,” he said.

Citing the varying priorities not only between different buy- and sell-side institutions but also the diverse needs of issuers and end-investors, Gibson argued that conflicts of interest between interested parties could prevent market consensus.

“This issue probably requires regulatory change, rather than the industry coming together,” she said.

Whilst trade execution in the secondary fixed income markets has undergone radical change over the past decade, with automation levels growing in response to multiple market and capital reforms, primary market issuance and allocation remains largely unchanged.

However, asset managers and owners have long voiced concerns over inefficiency and transparency. At present it requires a highly labour-intensive effort by trading desks to collect the required data from lead managers to enable portfolio managers to make decisions on their appetite for new bonds.

On the other, the process by which lead managers decide on allocations across the buy-side is notoriously opaque, leading to suspicions of relationship bias that can leave smaller firms feeling short changed. A further workflow concern is the common delays experienced in the issuance of an identifier by some bookrunners, which can further increase the workload of asset managers seeking to trade new issues.

“The process is ripe for improvement and electronification, specifically addressing the lack of security identifier at onset and the electronic transmission of orders into the order book,” said GAM’s Landazabal.

Pressure for greater process efficiency in the primary markets has led to increased activity among workflow solution providers. In addition to established players such as Bloomberg, Ipreo, founded by Blackstone and Goldman Sachs but bought by IHS Markit earlier this year, is ramping up its primary issue ordering platform, onboarding both buy- and sell-side firms. But it faces competition from three of the largest players in the US corporate bond market – Bank of America Merrill Lynch, JP Morgan and Citi – which are reported to be sounding out investors and brokers with a view to setting up their own electronic bond underwriting platform.

Mariano Goldfischer, CreditAgricole

Mariano Goldfischer, global head of credit trading and syndicate at Credit Agricole, accepted that current practices resulted in much time being wasted on both buy- and sell-side, but insisted that the current system for allocations was not unfair.

“The primary side of the market is still very manual. We need a change of behaviour on both the buy- and sell-side,” he said.

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