Greater post-trade transparency in the EU bond market is still yet to be fully achieved, according to an International Capital Market Association (ICMA) report.
The report was produced by ICMA’s Consolidated Tape Taskforce in response to a request from the European Commission’s Directorate-General for Financial Stability, Financial Services and Capital Markets Union for a bespoke study assessing the feasibility of implementing a consolidated tape for EU post-trade raw bond data.
Greater transparency in over-the-counter bond markets and other “non-equity” asset classes is one of the key objectives of the second Markets in Financial Instruments Directive (MiFID II) and MiFIR.
However, the report explained that in bond markets, MiFID II has yet to fully achieve its objective of creating greater transparency.
It explained that a key reason for this is the lack of a central database, which aggregates the various raw post-trade data sources into a single view (also referred to as a consolidated tape).
The report said: “Instead, raw post-trade bond data is currently fragmented across the different Approved Publication Arrangements (APAs) with inconsistent presentation formats and differing modes of machine readability.”
Inadequate data quality poses further challenges to the data that is currently available, according to the report.
Additionally, it highlighted a “noticeable unlevel playing field” with respect to access to raw post-trade bond data.
The goal of the bond consolidated tape is to improve transparency, assist decision-making and provide market insights to end-investors, large or small.
The report explained that adoption of the appropriate structure would benefit the whole market, by providing a centralised, high quality, affordable, trustworthy data source, offering a comprehensive market view.
It said: “This would bring immediate benefits to the professional bond market but could also benefit the retail sector more widely.”
The taskforce also suggested that the European Securities and Markets Authority (ESMA) should have oversight of consolidated tape contracts and monitor for any breach of contract, with supervision being implemented as of January 2022 or as soon as the services start.
“ESMA would also work closely with industry participants (buy-sides, sell-sides trading venues, data providers and retail) who are best positioned to advise with collective market functioning expertise and stewardship”, the taskforce explained.
Commenting on the benefits to the market of a single reliable source of post-trade data, Martin Scheck, ICMA chief executive, said: “The goal of the bond market consolidated tape is to improve post-trade transparency, assist decision-making and provide market insights to end-investors, large or small. We believe that adoption of the appropriate structure would benefit the whole market, by providing a centralised, high quality, affordable, trustworthy data source, offering a comprehensive market view.”
To read the full report, click here.
ICMA also recently pledged to continue lobbying efforts to achieve meaningful revisions to the settlement discipline of the Central Securities Depositories Regulation despite EU regulators’ latest dismissal of its concerns.
