A report published today by the Board of the International Organization of Securities Commissions (IOSCO) has found no substantial evidence showing that liquidity in the secondary corporate bond markets between 2004 and 2015 has deteriorated markedly from historic norms for non-crisis periods.
The report, titled Examination of Liquidity of the Secondary Corporate Bond Markets, presents a data-driven analysis of secondary corporate bond markets during 2004 and 2015, with a specific focus on liquidity. It provides a global view of corporate bond market development within the broader economic and financial context.
IOSCO´s report reveals that there have been meaningful changes to the characteristics and structure of corporate bond markets, caused by new technology, the growth of electronic trading venues, and changes in execution models and dealer inventory levels. The report’s findings confirm that corporate bond markets remain fragmented among national and regional OTC markets, and differ substantially across jurisdictions.
The conclusions in the report are based on a detailed analysis of various liquidity metrics, survey results from industry and regulators, industry roundtables, and a review of academic, government and other research articles. IOSCO also considered the responses to its consultation report, published in August 2016.
A dearth of useful data
The primary challenge facing IOSCO during its fact-finding work was a lack of useful data on the trading of corporate bonds on the secondary market in different jurisdictions, largely because most bonds are traded through decentralized, dealer-intermediated OTC markets. IOSCO found it particularly challenging to analyze information due to data gaps and differences in collection methods and the scope, quality and consistency of data across different jurisdictions.
The study also reinforced IOSCO’s view that regulators should have access to timely, accurate and detailed information on secondary bond markets to be able to assess adequately changes in these markets, monitor trends in trading, and respond accordingly. This data may be obtained through various means, including regulatory reporting requirements and public transparency to facilitate analysis of the corporate bond market. For this reason, the IOSCO Board has decided to update its 2004 report on regulatory reporting and transparency in the corporate bond markets. The purpose of this project will be a detailed examination of transparency regimes and regulatory requirements in place in IOSCO member jurisdictions.