Barcelona Crowds Show Bond Trading Rules Top Investor Worries

  • MiFID II session at Fixed-Income Leaders Summit draws traders
  • Investors seek clarity on scope of trade reporting requirement

To see what concerns bond investors most right now, follow the line of attendees at the Fixed Income Leaders Summit in Barcelona.

About 200 of 450 market participants at the conference on Wednesday tried to squeeze into a session on proposed changes to the European Union’s bond market trading rules. A presentation by Arjun Singh-Muchelle, senior adviser for regulatory affairs at the Investment Association, had standing room only and a queue out the door, while seats remained unfilled in a nearby room of panelists discussing the European Central Bank’s 1.1 trillion-euro ($1.3 trillion) bond buying program.

The EU is overhauling the region’s Markets in Financial Instruments Directive, known as MiFID II, to help prevent another financial crisis. Draft rules for the reform package, which will come into force from January 2017, introduce disclosure requirements that in some ways go further than the U.S. Trace bond-price reporting system.

“MiFID is at times ambiguous and contradictory, which can make it challenging, yet it will be the blueprint for trading bonds in the future,” said Elizabeth Callaghan, director for secondary markets at the International Capital Market Association. “You need to understand it in order to know how to adapt your business in the new world. This is why the room was jam-packed.”

Audience members in the crowded conference room of the Catalonian capital interrupted Singh-Muchelle with a barrage of questions about the scope of the rules and potential waivers. Attendants stayed for a follow-up panel on how to respond to market-structure changes.

Technical Standards

MiFID II is the second iteration of rules that are already a cornerstone of European financial market regulation. The changes are part of a wider overhaul of standards that was ordered by the EU four years ago to shine light into opaque markets that crashed after the financial crisis, leading to taxpayer-financed bailouts of banks and governments.

The European Securities & Markets Authority published technical standards last month that detail which bonds it will determine as liquid and, therefore, subject to new pre- and post-trade price disclosure. Trace requires reporting only after trades have taken place.

The draft rules stipulated that dealing venues will have to show tradeable quotes to all market participants before trades take place and publish prices and volume data shortly after. While EU market regulators relaxed some of the rules they originally proposed, investors are concerned that the new reporting requirements will actually hurt liquidity and raise costs as investors and traders will be reluctant to reveal positions.

“There are a lot of uncertainties surrounding the regulation,” said Flemming Due, head of e-trading at Danske Bank, who couldn’t find a seat for either session at the conference. “People want some clarity to be able to form right strategies.”

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