Transparency movement to expand into government bonds

A few months after IIROC started publishing corporate bond data, it has announced plans for increased transparency in government bonds

Canada’s push to increase transparency in its bond markets may soon be expanded to government debt, according to the Financial Post.

At the recent Bloomberg Canadian Fixed Income Conference, IIROC Vice President of Market Regulation Victoria Pinnington said that regulators are set to start discussions with the Bank of Canada and CSA. The agenda: how to enhance transparency and pricing in government bonds, which compose 95% of the $650-$750 billion in monthly flows currently being reported.

“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. “Those discussions will happen soon. It’s on their agenda and our agenda as well.”

The objective of improving transparency in the domestic bond market was officially prioritized a year ago with an announcement from Canadian regulators. Since then, initiatives to support this have included moving towards a two-day trade reporting delay and the appointment of the dealers organization as the information processor for corporate bond trades in Canada.

Two months ago, the IIROC launched a website for the public to view corporate bond information. Trade pricing on certain corporate bonds is now publicly available, with regulators planning to report prices on all corporate bonds by next year.

Government debt is currently exempt from transparency initiatives, and will remain so until 2018. Investors say it could have an effect on liquidity, or the ability to trade without affecting the price.

The effort to improve transparency requires a balancing act. Releasing too much information will reveal positions and freeze up trading. This is a concern because Canada’s small bond market is dominated mostly by the largest banks, which are involved in 90 to 95% of the trade volume, according to IIROC.

Measures to improve transparency introduced by regulators have resulted in a reduction of “off-the-run” debt or liquidity in older corporate bonds, traders say.

In the meantime, IIROC is collecting information and has to take time before arriving at any conclusions about the impact of new reforms, said Pinnington.

“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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IIROC now publishing corporate debt trade data