An Examination of Transparency in European Bond Markets

Author Name: 
Rhodri Preece

The European Commission’s overhaul of securities markets regulation in Europe intensified with the recent publication of legislative proposals for the revised Markets in Financial Instruments Directive and Regulation (MiFID and MiFIR, respectively). The legislative package, currently under negotiation in the European Parliament, puts transparency at the forefront with ambitious proposals to shed light on trading in practically all financial instruments –— from equities to bonds, derivatives, and even emissions trading allowances.

CFA Institute has contributed to the transparency debate with the publication of a recently released report, An Examination of Transparency in European Bond Markets . The report examines the existing state of transparency in bond markets, drawing from the experiences of Italy— – Europe’s largest bond market and one of only a few to have already mandated public reporting of fixed income transactions— – and the United States, which has required public post-trade transparency in the bond market since 2002 via the TRACE system (Trade Reporting and Compliance Engine). Broadly, the report concludes that careful implementation of post-trade transparency requirements in European bond markets can benefit investors by improving access to pricing information, thereby bridging the information gap between investors and dealers, and increasing competition among liquidity providers.