Banks Win Concessions in EU Bond-Market Transparency Rules

  • European regulators will conduct yearly liquidity assessments
  • Tranparency rules will be adjustments pending assessments

Banks and asset managers are poised to win easier restrictions on trading bonds and derivatives in the European Union, as the bloc’s executive arm softened key elements over the objections of the EU markets regulator.

Under transparency rules issued by the European Commission, the European Securities and Markets Authority must assess market liquidity each year before tightening the rules to capture more securities. ESMA had argued for an automatic phase-in of stricter standards. The rules published on Thursday must be endorsed by EU member states and the European Parliament before taking effect.

In the rule, the Brussels-based commission states that it’s “crucial” for ESMA to carry out a “comprehensive assessment” each year to ensure markets wouldn’t be hurt by requiring that more trades meet the heightened scrutiny for trading transparency. ESMA will have to submit revised regulations each year for approval by the commission.

The shift shows how European regulators are increasingly responding to industry arguments that trading regulations threaten to dampen liquidity in bond, derivatives and commodities markets. The rules are part of MiFID II, a wide-ranging overhaul of trading regulations across the 28-nation bloc.

‘Cautious Calibration’

“I am glad to see that the commission has opted for a cautious calibration and a cautious approach governing the transition from one transparency phase to the next,” Markus Ferber, the lead lawmaker in the European Parliament overseeing the legislation, said in an e-mail.

Lobbying groups including the Association for Financial Markets in Europe and the International Swaps and Derivatives Association have argued over the past year that proposed standards could harm trading.

“AFME views the EU Commission ex-ante, non-automatic approach to bond transparency assessments as a sensible outcome and one we were strongly supportive of,” Victoria Webster, a director in the fixed income division of the association, said in a statement. “It meets ESMA’s objective of having a meaningful transparency regime, while providing enough leeway to stop any increase in the transparency requirements that could have adverse effects.”

Still, some in the market said the regulations would distort trading by artificially determining liquidity of certain securities.

“The problem is not solved,” said Bill Blain, a strategist at brokerage Mint Partners in London. “Non-market academics and legislators are deciding what is good for markets. Markets don’t work that way.”

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