Ontario Regulator to Review Corporate Bond Market Transparency

The Ontario Securities Commission said it will review corporate bond trading practices to determine whether it should take a more active role to ensure transparency in the C$57 billion ($53.4 billion) market.

In a statement released on its website today, Canada’s main securities regulator questioned whether the private service entrusted with ensuring transparency in the corporate bond market since 2003 is doing enough.

The regulator said the service, called CanPX, has been slow to increase the list of securities it provides trading information on and has not done enough to make that information known, particularly to individual investors.

“This calls into question whether CanPX’s contribution to corporate fixed-income transparency has been meaningful,” the statement said. “We will determine whether it is appropriate to continue with an industry-led solution to corporate debt transparency or whether additional regulatory intervention is required.”

The regulator extended CanPX’s mandate as the corporate bond market’s designated information processor to Dec. 31, 2015, to give it time to conduct its review.

The move comes as bond trading falls under closer scrutiny worldwide with the top regulator in the U.S. calling for more public information on private trading and the European Union seeking to build a system to publicly disclose prices.

Canadian Market

It’s historically been more profitable to trade bonds than stocks because the debt markets are less transparent, making it easier for brokers to take a bigger fee for each exchange.

Secondary trading in Canadian corporate bonds was about C$57 billion in the first three months of the year, according to the Investment Industry Regulatory Organization of Canada, or IIROC, the self-regulatory body of securities dealers.

The Canadian transparency service, CanPX, is a joint venture between the industry association representing securities dealers, the bond market’s middlemen, along with IIROC and certain inter-dealer brokers, according to its website. It collects trading information from dealers and makes it available one hour after the trade was reported.

CanPX provides information on 340 securities it collects from 12 dealers and it is responsible for determining which securities to track, according to the OSC statement. Other private companies also provide price information on corporate bonds, though dealers are not legally obligated to supply those services with information, as with CanPX.

The OSC said as it conducts its review CanPX has pledged to “enhance the process” it uses to add new securities to those it provides information on and take steps to make sure the public is better aware of the service.

Before it's here, it's on the Bloomberg Terminal.