Emmanuel Roman, chief executive officer at PIMCO, has made a case for disintermediation / all-to-all trading being the only method to deliver transparency in the corporate bond market. He was writing in response to an International Organization of Securities Commissions (IOSCO) report which has made recommendations regarding the availability of corporate bond information, both to regulators in the form of reporting and to the public in the form of transparency requirements. It proposed that:
- Regulatory authorities obtain the information necessary to develop a comprehensive understanding of the corporate bond market in their jurisdiction. This understanding should include the characteristics of the market and the types of bonds traded.
- Regulatory authorities should make a clear framework and underlying methodology of regulatory reporting and transparency available.
- Regulatory authorities should have access, either directly or upon request, to pre-trade information where it is available, relating to corporate bonds.
- Regulatory authorities should implement post-trade (transaction) regulatory reporting requirements for secondary market trading in corporate bonds. Taking into consideration the specifics of the market, these requirements should be calibrated in a way that a high level of reporting is achieved.
- Regulatory authorities should consider steps to enhance the public availability of appropriate pre-trade information relating to corporate bonds, taking into account the potential impact on market liquidity.
- Regulatory authorities should implement post-trade transparency requirements for secondary market trading in corporate bonds.
- Where there is transparency of post-trade data relating to corporate bonds, regulatory authorities should take steps to facilitate the consolidation of that data.
Roman wrote in a letter to IOSCO that, “Although we generally support greater transparency to regulators, we are concerned that IOSCO’s recommendations related to public pre- and post-trade transparency are not sufficiently calibrated to the current structure and realities of the corporate bond market. Greater market transparency, without a corresponding decrease in market liquidity, can only be achieved by disintermediation i.e., all-to-all trading; however, the effectiveness of such platforms is dependent on broad adoption and inclusion by all market participants.”
He said his firm is opposed to real-time public reporting of pre- and post-trade information as long as the corporate bond market remains primarily a dealer-driven market and that where public transparency initiatives are pursued, that IOSCO should recommend significant reporting time delays of up to 30 days along with smaller volume cap requirements for large transactions and otherwise illiquid assets in post-trade transaction public reporting regimes across jurisdictions.
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