Senior bond market professionals have warned that steps to increase price transparency in the European bond market could damage liquidity at a time when traders have become less willing to take risks, Financial News reports.
Michael Ridley, global head of syndicate at JP Morgan Securities, cautioned against the introduction of rules requiring the distribution of real-time transaction and price data on corporate bond trades, as is the case under the Trace system in the US.
“If a Trace system was introduced in Europe it would be a disincentive to commit capital at a time when the majority of bond issues do not trade and the quotes we do have might dry up,” he says.
Paul Hearn, global head of origination and distribution at BNP Paribas, says: “Too much transparency will hurt people buying and selling in large sizes, which means management will give traders less capital. That means less liquidity.”
The comments were made last week in Vienna at the annual conference of the International Capital Market Association, the trade body of the global securities industry.
However, Richard Portes, professor of economics at the London Business School, who carried out research into bond market transparency in 2006, said this was an attempt by the banks to delay or block a measure that would reduce their profits.
The comments come one month after the European Commission published a report expressing concern about the quality of price information available to retail investors on European bond issues.
For now, the Commission has said it will monitor the voluntary system introduced last September by ICMA.
The Association’s voluntary standard applies to corporate bond issues of €1 billion ($1.5 billion) or more with a credit rating of A- or above, and only affects trades of between €15,000 and €1m.