ICMA’s Members support greater transparency of post‐trade data to regulators. However, they are concerned that publication of post‐trade data to the market as a whole, especially without adequate delays for less liquid bonds or for block trades, will negatively impact liquidity.
It should be noted that ICMA’s Members fully support greater transparency of post‐trade data to regulators – this includes all transaction data including size, date and time data. However, there is genuine concern amongst our members that publication of post‐trade data to the market as a whole, especially without adequate delays for less liquid bonds or for larger/block trades will negatively impact on liquidity. As you will see from our survey, the most important criterion for all market participants is liquidity whereas post‐trade transparency ranked fairly low for all respondents. Moreover, respondents to our survey also agreed that out of a range of measures that could improve liquidity, improvements to post‐trade transparency were not high on the list of priorities whereas electronic trading, larger issue size and improvements in pre‐trade transparency (as discussed above) all ranked significantly higher.
Given these results, combined with the clear preference of respondents for end of day, high/low/median prices and aggregated volumes the question that must be asked is whether the cost of imposing a more rigorous publication regime can be justified by the supposed benefits. In this regard, we note that neither the current CESR consultation nor the December 2008 consultation and July Report contained any form of cost benefit analysis. Accordingly, we would urge CESR to consider not only the costs to the industry but also the costs to the regulators themselves in developing the requisite IT systems to handle the vast amounts of trade data from all the asset classes considered by this consultation, some of which could potentially be on a real‐time basis. Regulators and market participants risk a flood of data that few will be capable of analysing. Also, we would strongly urge the need for consistent transaction reporting obligations across Europe in order to minimise costs to the industry.
We also understand from the CESR Open Hearing that the FSA has carried out an assessment of current levels of liquidity in the market so that it will be possible to assess the impact of the proposed transparency framework post‐implementation. It would be helpful if the FSA could publish the work it has done to date in this regard. It is also worth noting that many market participants believe that TRACE has had a negative impact on liquidity in the US, as more post‐trade transparency promotes the “winner’s curse” – the ability to trade in large/block size is impacted because after the first block is traded, everyone ‘knows’; the people seeing the information are those with the least skin in the game; the winner is more at risk, since others know where/how much was traded and finally, those who didn’t win the price can push the market against the winner so he will be less willing to show as good a price.
Given the concerns of market participants that greater transparency could negatively impact on liquidity, we recommend the adoption of a phased approach so that if it becomes clear that greater transparency is having a negative impact on liquidity only a small segment of the market will have been affected. If this idea were to be looked upon favourably by CESR, we would recommend that the transparency regime initially focus on transactions under €1 million which would encompass a significant proportion of trading activity and include the vast majority of retail trading in particular.
Additionally, if a post‐trade publication scheme as currently envisaged by CESR were to be set up it would be helpful if, in the sub‐€1million category, retail trades could be distinguished from wholesale trades.
© ICMA
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