The International Capital Market Association (ICMA) has co-signed a cross-industry statement on the MIFIR RTS 2 post-trade deferral framework for bonds, calling for a more data-centric and scientific approach.
The European Securities and Markets Authority (ESMA) is responsible for the regulatory technical standards for a revised post-trade transparency regime for the European bond markets, which is intended to come into force with the introduction of the long-awaited consolidated tape.
Accurately determining which bonds and transactions will benefit from increased transparency, and those for which a level of information deferral is necessary, will be critical to the success of the EU’s transparency regime, the group said, with the success of the long-awaited consolidated tape and Capital Markets Union dependent on the design and calibration of the related deferral framework, the group suggests.
“Given the extensive diversity of liquidity profiles of different bonds, even within similar classes and groupings, and the relative infrequency with which many bonds trade, the effective functioning of the market is highly reliant on the ability and willingness of market makers and other principal trading firms to take risk to facilitate investor liquidity requirements. Understanding and quantifying this risk is the starting point for determining appropriate deferral calibrations,” the letter said.
ICMA – alongside three other organisations – used historical trading data to estimate the time required by liquidity providers to trade out of risk positions, for a given size, whether in terms of classes or subclasses of bonds, or at the individual security level.
The group of associations have recommended that ESMA uses a similar approach in assessing the appropriate groupings, liquidity determinants, deferrals, and related thresholds, to shape its design and calibration of the revised transparency regime.
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