More Disclosure Heads to European Trading Desks. In Spoonfuls

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  • EU making final touches on rules for debt, stocks, commodities
  • Waivers, exceptions water down effort at full transparency

The drive for transparency in financial markets is hitting a fog patch.

Regulators meet in Paris this week to approve new European Union rules for the securities industry that will force it for the first time to publish private market data that’s valuable to investors, including traded bond prices. There may be exceptions: the very biggest debt purchases by value and “illiquid” bonds may escape the disclosure requirement, according to a draft proposal from August seen by Bloomberg.

The changes are part of a wider overhaul of standards touching on everything from equity derivatives to high-frequency trading that’s set for adoption by the European Securities and Markets Authority, or ESMA. Trade groups lobbying on behalf of members like BlackRock Inc., the world’s biggest money manager, and Aviva Investors have fought against price disclosure for infrequently purchased debt, saying it will only make trading more difficult.

“Getting the right level of transparency without hurting liquidity is a difficult balancing act,” said Rhodri Preece, head of capital-markets policy at the CFA Institute in London, which promotes education and ethics for investment professionals. It would be “cumbersome and of little information value to investors” if there are too many exemptions, he said.


Regulators in the 28 EU nations have been lobbied for months by investment firms to include limits and waivers in the 1,000-page regulation. The project was ordered by the EU four years ago to shine light into opaque over-the-counter markets that crashed after the last financial crisis, leading to taxpayer-financed bailouts of banks and entire governments.

In the 9.3 trillion-euro ($10.4 trillion) sovereign-debt market, most OTC transactions are made on private platforms or by phone with little or no price disclosure. Under the new rules, these will be published for securities that are the most-traded and the most plentiful, such as benchmarks. The draft rules also require “pre-trade” publishing of the range of bid and offer prices, and the depth of interest at those prices.

An example of highly liquid debt is the U.K. bond maturing Sept. 7, 2024, which alone traded $381 billion of nominal value in the second quarter, according to Trax data.

‘Quite Opaque’

“It’s important to increase transparency in those European markets where most of the trades are OTC and quite opaque,” Julio Alcantara, chief executive officer of AIAF, Spain’s fixed-income exchange, said by e-mail. “Making exceptions for barely liquid assets doesn’t help stop them being that way.”

ESMA is required by the so-called MiFID II directive to bring the new rules into effect by January 2017. It hasn’t published publicly a proposal of the rules it plans to review and approve at its meeting Sept. 24 and 25. The package will then be sent on to the European Commission.

Reemt Seibel, an ESMA spokesman in Paris, declined to comment on the draft or on what percentage of bonds would be subject to price disclosure.

Bond World

For more, read this QuickTake: Defusing Derivatives

In the world of government bonds, which are backed by public funds, the planned threshold would only make prices public on securities with at least 2 billion euros in nominal value issued, according to a draft of the rules, which could be altered at the Thursday meeting.

A Bloomberg search of 3,627 EU sovereign bonds shows that 711 individual bonds, or 20 percent, meet that category. However, they represent about 95 percent of the money raised by sovereigns.

The Investment Association, a U.K. trade group for money managers including Vanguard Group Inc., Axa Investment Managers and State Street Global Advisors, has proposed increasing the issued limit to 5 billion euros from 2 billion euros. The group, whose members jointly oversee more than 5.5 trillion pounds ($8.5 trillion), said price disclosure before or after a trade will ultimately raise costs for the end-investor.

With “genuinely illiquid bonds,’’ publishing prices raises “the very real possibility of predatory firms seeking to exploit this transparency, leading to a widening of bid-offer spreads,’’ the group wrote in an open letter earlier this year to ESMA.