• IIROC regulator to discuss issue with Bank of Canada ‘soon’
  • Marketplace overseer collecting data on impact of new reforms

Canada’s effort to boost transparency in its bond markets could soon be extended to government debt, according to the manager for market regulation at the organization overseeing investment dealers.

Regulators are set to begin discussions with the Bank of Canada and the Canadian Securities Administrators on the best approach to enhance transparency and pricing in government bonds, which make up 95 percent of the C$650-C$750 billion ($493 to $569 billion) in monthly flows currently being reported, Victoria Pinnington, senior vice-president of market regulation at the Investment Industry Regulatory Organization of Canada, said at the Bloomberg Canadian Fixed Income Conference in New York Tuesday.

"We’ve heard the concerns and we will be working with the CSA and the Bank of Canada what next steps to take in transparency of government debt," she said. IIROC is a self-regulatory organization funded by its members including Canada’s biggest banks and other securities firms. “Those discussions will happen soon. It’s on their agenda and our agenda as well.”

Canadian regulators announced efforts a year ago to improve transparency in the country’s domestic bond market, including moving toward a two-day trade reporting delay and the appointment of the dealers organization as the information processor for corporate-bond trades in Canada. Trade pricing on a select list of corporate bonds is now publicly available and regulators plan to report prices on all corporate bonds by the middle of next year.

But government debt is currently exempt from any transparency initiatives until January 2018, and investors say that it could impact liquidity, or the ability to trade without affecting the price.

Canada’s small bond market is dominated primarily by the biggest banks, which are involved in 90 to 95 percent of the trade volume, according to IIROC. Any efforts to improve transparency in the bond market must be balanced against concerns that too much information will reveal positions and freeze up trading.

Traders say that liquidity in older corporate bonds, known as “off-the-run” debt, has been reduced since regulators introduced measures to improve transparency.

For now, IIROC is collecting data and needs more time before coming to any conclusions about the impact of new reforms, Pinnington said.

“Rightly, it is a concern the industry feels,” she said. “With any new regulation, any new transparency initiative or surveillance, it is a concern. It is our intention to be transparent with the results of those studies.”

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