Fixed Income Needs Increased Transparency
The Investment Association (IA) is calling for increased transparency in the fixed income market by proposing measures to increase the availability of data on bond trades in a paper published today, ‘Fixed Income Best Execution: Not Just a Number’.
The lack of data has increasingly come under the spotlight, as under MiFID II asset managers are now required to demonstrate how they are achieving the best possible results for investors when executing bond orders.
As the bond market evolves and becomes increasingly digitalised, data should become more readily available; however this is taking place at a slow and uneven pace and data remains excessively expensive.
In order to increase the availability of data in the fixed income market and improve transparency, the IA therefore recommends:
- The development of a consolidated tape, an electronic system which would provide real-time data on trading volume and price;
- Regulatory efforts to reduce market data costs.
Galina Dimitrova, Director of Investment and Capital Markets at the IA said:
“Asset managers are concerned that the poor availability of data in the bond market is undermining transparency. A well-functioning bond market is essential to allow companies to borrow more affordably, enabling economic growth and the creation of jobs. Our recommendations aim to improve the availability of data, which will ultimately deliver better returns for end investors.”
In addition to the lack of data, demonstrating best execution is also more challenging in comparison to the equities market, as it is less liquid and lacks continuous pricing. The IA is therefore recommending a more nuanced approach to best execution for bonds which is anchored in the context of the investment process.
Source: Investment Association
Institutional investors are increasingly considering opportunities in the digital asset class.
The consolidated quote system for corporate bonds has raised funds to expand outside the US.
SEC's proposed rule could result in dissemination of incomplete, inaccurate and misleading data.
SEC requires a review of data on non-listed securities before initiating or resuming quotes.
Broker-dealers will be able to meet the new SEC requirements.