TORONTO Canadian regulators are proposing to overhaul the country’s opaque fixed income markets to improve transparency and regulatory oversight, and evaluate access.
A set of proposals released Thursday by the Canadian Securities Administrators will be subject to a 45-day comment period. The project also involves the Investment Industry Regulatory Organization of Canada (IIROC), which is collecting and analyzing trading data as part of IIROC’s debt transaction reporting initiative with the Bank of Canada.
The domestic bond-trading market operates “over the counter” rather than on an exchange like equities — yet the market’s value in 2014 was about $10.8 trillion, nearly five times the value of equity market trading, according to IIROC.
Among the specific new proposals is a plan to make all trade information for corporate debt securities executed by dealers public by the end of 2017. Dissemination would not be in real time, through the exact length of the delay has not been determined. There would also be a cap on exact volumes beyond a pre-determined size, with the volume cap intended to maintain anonymity of trades when there are very few players who could be behind such large transactions.
Thursday’s proposals would also give regulators greater access to centralized information on fixed income markets.
“We will … analyze the debt transaction data going forward to understand market trends and inform policy decisions,” the CSA, an umbrella group for provincial regulators, said in the notice containing the new proposals.
Global regulators have been pushing for more transparency across the capital markets since the financial crisis of 2008. The proliferation of complex financial products in opaque, decentralized, and less-regulated corners of the market was blamed for, at minimum, exacerbating the crisis.
“Canada’s move towards a regulatory-led solution to debt market transparency … is consistent with the approach in other jurisdictions, notably the U.S and Europe,” said Jack Rando, managing director of the Investment Industry Association of Canada.
He said the industry association is pleased the CSA did not take “a simple ‘cut-and-paste’ approach, but instead … considered the uniqueness of the Canadian market and its own regulatory priorities.”
The industry association plans to assess the proposals and hopes regulators are open to adjustments if its appears they would cause “unintended consequences, such as constrained liquidity in the bond market,” Rando said.
A report published by the Ontario Securities Commission in April concluded that fixed income data is limited and fragmented in Canada, which makes it difficult to conduct a comprehensive assessment of the fixed income market.
The report also said large investors have significantly more bargaining power in the decentralized secondary over-the-counter market, and direct retail participation in both the primary and secondary fixed income markets is low. Retail investors primarily access the fixed income market by purchasing investment funds.