Sweden Cracks Down on Traders Ignoring Bond Rules
Sweden’s financial watchdog will stop turning a blind eye to traders who have ignored a rule requiring them to report company bond prices as the regulator seeks to improve transparency in a growing market.
The Swedish Financial Supervisory Authority will ask corporate debt traders to follow rules similar to those adhered to in the government and mortgage bond markets. That means they must file trade reports including volumes as well as the highest, lowest and closing prices, no later than 9 a.m. the next day.
More transparency will lead to a better functioning market and to lower costs for companies issuing debt, according to Daniel Sachs, chief executive officer of Proventus AB, whose Proventus Capital Partners invests its own and external funds in company loans and public corporate bonds.
“One of the reasons we’re now taking a more active role is that we’ve seen that the market has changed, there’s more activity now,” Anna Jegnell, head of markets at the Stockholm- based FSA, said in a telephone interview. “The reporting requirement already exists but we’re in talks with the market on how and when we can get it going in practice.”
The krona strengthened 0.2 percent to 8.5583 per euro as of 3:25 p.m. in Stockholm.
The outstanding bond value of non-financial Swedish companies was about 191 billion kronor ($29 billion) at the end of 2011, an increase of about 3 billion kronor from 2010, the Riksbank said Aug. 31. Following the financial crisis, companies have searched for alternatives to bank loans, meaning Sweden’s corporate bond market is likely to grow, the central bank said.
“It’s in everybody’s interest that transparency in the corporate bond market increases,” said Sachs, whose investments include Preem/Corral and Thomas Cook. He has urged the FSA to step up pressure on corporate bond traders to abide by existing rules.
Jegnell at the FSA didn’t provide a date for when dealers must start reporting trades.
“We’ve been in dialogue with the market on reporting corporate bond prices and volumes for some time now,” she said. “There’s also a greater presence of smaller investors, through related products, so the need for consumer protection is bigger now.”
Issuance in Sweden is dominated by some of the country’s biggest companies, including TeliaSonera AB (TLSN), Volvo AB and Atlas Copco AB. (ATCOA) Smaller firms may have difficulty attracting investors because they don’t have a credit rating, according to the Riksbank.
Sweden’s banks have held back credit in response to stricter capital requirements in the Nordic country than those enforced elsewhere. Nordea Bank AB, Swedbank AB, Svenska Handelsbanken AB and SEB AB must set aside no less than 10 percent core Tier 1 capital of their risk-weighted assets this year. In 2015, the minimum ratio will rise to 12 percent and compares with the Basel Committee on Banking Supervision’s minimum requirement of 7 percent, due to take effect by 2019.
“The main motivator for companies now is to raise capital at a good price and it’s largely working for the big corporations,” Sachs said. “Over time, though, I think more transparency in the secondary market would also be in their interest as pricing would improve and costs would be lower if the spreads decreased. It would also allow for longer maturities.”
Transparency will improve if more companies list their bonds electronically, Sachs said. Nasdaq OMX Group Inc. (NDAQ) on Dec. 10 started new platforms in Stockholm and Copenhagen, the First North Bond Market. The new exchange has more lenient rules on accounting and reporting standards than the regulated market.
“I hope we’re not going to get a market where the large companies still trade over-the-counter, where there’s no transparency, while small companies are found in a more transparent market,” Sachs said.
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