The state of liquidity in the European bond markets has been hotly debated for a number of years, with the growing realization that due to a culmination of factors market liquidity has been in serial decline for more than a decade.
There is an ongoing parallel discussion on the issue of transparency in
the European bond markets. While it is broadly recognized that a degree
of price transparency is fundamental for market efficiency and
integrity, the intersection of transparency and liquidity is a far more
complex consideration, yet an important one from the perspective of
market development.
ICMA has been at the forefront of industry
work related to both bond market liquidity and the design and
implementation of the European transparency framework for bonds. This paper
attempts to pull those two workstreams together in order to explain how
bond market structure and dynamics are very different to those of
equity markets, that this is the basis for how liquidity is created in
bond markets, and why this is central to any considerations around the
framework for European bond market transparency, including any proposed
future regulation related to the provision and design of a consolidated
tape for bonds.
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