The Investment Association has called for the implementation of the Markets in Financial Instruments Regulation (Mifir) to be delayed as it says the trading rules around bonds will make them harder to buy and sell.
The industry body says the proposed rules on trading and bond liquidity will have a detrimental impact on investors, leading to worsened liquidity, higher trading costs and higher borrowing costs.
The Investment Association has called for a 30-day public consultation and a delay of the implementation of the Mifir rules, from January 2017 to January 2018, to “give sufficient time for market infrastructure to develop”.
The current Regulatory Technical Standards included in Mifir will mean that investors have to notify the markets ahead of buying or selling any bonds.
The IA says: “Such frequencies are at odds with the liquidity threshold test contained in Mifir itself, which calls for the existence of ‘ready and willing buyers on a continuous basis.
“We also believe it should be easier for transactions in individual bonds to qualify for waivers from the transparency rules, to allow smaller trades to take place without the risk of price disruption.”
The Regulatory Technical Standards are set to be finalised by EU member states next month, while proposals on the details of the Mifir regulation are expected “imminently”, says the IA.
Investment Association chief executive Daniel Godfrey has already questioned the way bond liquidity will be calculated under the new Mifir rules, calling for a rethink.
The ’instrument by instrument’ approach proposed by EU regulators, which continually measures bond liquidity on an individual basis, is “deeply flawed”, says Godfrey. The approach will only measure an instrument’s liquidity on a monthly or quarterly basis, rather than daily, which the Investment Association says is “impractical”and “deceptive”.
Instead, the Investment Association proposes the Class of Financial Instruments Approach Plus (COFIA+) which categorises bonds into different groups and then uses their size to determine liquidity.
“It is simple for regulators to implement and for investment managers to understand. It is also predictable for sovereign and corporate issuers of debt and provides the stability required for investment managers to make decisions on behalf of their clients,” says Godfrey.
“Getting the right method of determining liquidity in Europe’s bond markets is vitally important. Success not only facilitates investment managers’ transactions in these markets, but also speed and costs for governments and companies when issuing debt.”