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Investment Association calls for rethink as bond-trading plans threaten performance

Chris Hamblin, Editor, London, 17 September 2015

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The UK's Investment Association is calling for a rethink of proposed trading rules that would make it harder for HNW investors to buy and sell bonds.

The plans could damage already-strained levels of liquidity in the bond market, triggering higher transaction costs and higher borrowing costs for sovereigns and companies, the association claims. It is calling for a public consultation of at least 30 days on the plans, also recommending that the European Union should learn some lessons from the far-from satisfactory implementation of its European Market Infrastructure Regulation (EMIR) and provide sufficient time for "market infrastructure" to develop. It basically wants the EU to push the effective date for the Markets in Financial Instruments Regulation rules back from January 2017 to January 2018.

As it stands, MiFIR is on track to introduce certain rules across Europe in January 2017, requiring investors to inform the rest of the market in advance about their intended transactions. The so-called Regulatory Technical Standards (RTS) covering the ‘transparency’ rules under MiFIR are set for finalisation next month by EU member states, working through the European Securities and Markets Authority. The current RTS would force investors to alert the markets ahead of trying to buy or sell bonds, even when these show relatively low liquidity levels – trading less frequently than once a day. Such frequencies, the association says, 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”.

The IA also believes that 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.

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