25 January 2013

AFME: MiFID II and fixed income transparency

AFME fully supports the MiFID II proposal to extend public price transparency requirements to the secondary market for bonds and structured finance products. Transparency, in the form of the publication of post‐trade details and pre‐trade indicative quotes, has important benefits such as improved price discovery and price formation. There are however certain risks, which can lead to increased transaction costs for investors and increased borrowing costs for issuers.

AFME supports the EC’s objective to increase transparency through post‐trade reporting, including the proposal to publish post‐trade information as close to real time as possible subject to the appropriate calibration for less liquid trades and large trade sizes. Over the last two years, AFME has led an initiative of investors, dealers, trading venues, data vendors and issuers to develop an industry‐designed transparency framework for fixed income cash bonds. Through its work, AFME has identified the following critical recommendations in relation to the Level 1 text on non-equities post trade transparency.

AFME recommendations

Phasing in of both the pre- and post-trade transparency regimes is critical to ensure minimal adverse impacts. AFME therefore recommends that legislators grant in the level 1 text sufficient powers to ESMA to determine the conditions for phasing in the transparency requirements.

The parameters and procedures for assessing liquidity threshold for deferred publications [MiFIR Article 10 and 20] and pre-trade waivers [MiFIR Article 8(2) and (4)] should be dynamic, consistent across the EU and defined following appropriate technical analysis. AFME therefore recommends that legislators grant in the level 1 text sufficient powers to ESMA to design the necessary pan-European infrastructure, including a central calibrating entity, along with the appropriate parameters and procedures for assessing liquidity thresholds.

AFME recommends for volume omission to be reinstated in article 10(3) and 20(3) MiFIR as originally proposed by the Commission.

As recognised by the pre-trade transparency articles [MiFIR Article 8(1)(b) and article 17(3 and7)], deferrals from post-trade publication should also be based on sizes that are “above a size specific to the instrument, which would expose liquidity providers to undue risk and takes into account whether the relevant market participants are retail or wholesale”.

As suggested by the Commission, AFME believes that illiquid instruments should be exempted from the regime for Systematic Internalisers under MiFIR Article 17; AFME therefore recommends the removal of MiFIR article 17(1), final paragraph.

AFME recommends that the Council follow the Parliament’s approach, allowing flexibility to update and withdraw quotes (MiFIR Article 17(1b), EP text).

The vast majority of non-equity instruments are traded on an RFQ basis regardless of their size. AFME therefore recommends reverting to the wording proposed by the DK presidency allowing waivers for request for quote and voice trading systems without any size thresholds.

Full document

© AFME