The Investment Association is calling for increased transparency in the fixed income market and recommends steps to increase availability of bond trades data.
The paper Fixed Income Best Execution: Not Just a Number is published today and the trade body says while it focuses on fixed income best execution, the central concepts and factors apply across the board.
In the wake of MiFID II regulation, asset manager are required to disclose how they are achieving the best possible results for investors.
IA believes with bond market becoming increasingly digitalised, data should become more available as a result, however the association believes this is happening at a “slow pace and uneven pace”, and the data remains excessively expensive.
The IA’s fixed income traders committee calls for action on the following steps to increase bond market data availability:
- The development of a consolidated tape, an electronic system which would provide real-time data on trading volume and price
- Regulatory efforts to reduce market data costs
- Limited easing of capital requirements on brokers so they are able to hold more inventory and enhance market liquidity
IA’s investment and capital markets director, Galina Dimitrova, says: “Asset managers are concerned that the poor availability of data in the bond market is undermining transparency.
“A well-functioning bond market is essential to allow companies to borrow more affordably, enabling economic growth and the creation of jobs.
“Our recommendations aim to improve the availability of data, which will ultimately deliver better returns for end investors.”
She says: “In addition to the lack of data, demonstrating best execution is also more challenging in comparison to the equities market, as it is less liquid and lacks continuous pricing.
“The IA is therefore recommending a more nuanced approach to best execution for bonds which is anchored in the context of the investment process.”