Source: The Invesment Association
The Investment Association is today calling for a rethink of proposed trading rules that would make it harder for investors to buy and sell bonds.
The plans could damage already-strained levels of liquidity in the bond market, triggering higher transaction costs and higher borrowing costs for sovereigns and companies, the Association warns.
The Investment Association is calling for a public consultation of at least 30 days on the plans. We also recommend that EU authorities, drawing on the lessons from EMIR implementation, give sufficient time for market infrastructure to develop. Specifically, that means pushing back application of the MiFIR rules from January 2017 to January 2018.
The proposals are expected imminently, in the final details of the Markets in Financial Instruments Regulation (MiFIR), which will introduce certain rules across Europe from January 2017. These will include requirements for investors to inform the rest of the market in advance about their intended transactions.
The so-called Regulatory Technical Standards (RTS) covering the ‘transparency’ rules under MiFIR are set for finalisation next month by EU Member States, working through co-ordinating body ESMA.
The current RTS would force investors to alert the markets ahead of trying to buy or sell bonds, even when these show relatively low liquidity levels - trading less frequently than once a day.*
Such frequencies are at odds with the liquidity threshold test contained in MiFIR itself, which calls for the existence of “ready and willing buyers on a continuous basis”.
We also believe it should be easier for transactions in individual bonds to qualify for waivers from the transparency rules, to allow smaller trades to take place without the risk of price disruption.