27 January 2023

ICMA publishes a proposal for a post-trade transparency framework for sovereign bonds traded in the EU

ICMA and its members believe that the inclusion of meaningful post-trade data for the sovereign bond market (including bonds issued by supranationals and sovereign agencies) is fundamental to the integrity of the EU consolidated tape. T

ICMA is pleased to share with you its proposal for a post-trade transparency framework for sovereign bonds traded in the EU, in the context of the current MiFIR review.
 
The three key recommendations of the proposal are:

     (i) the need for a harmonised approach to sovereign bond market transparency across the different EU jurisdictions; and
     (ii) an end to the current optionality for volume omission and indefinite aggregation of trades; and
     (iii) the possibility for deferring the publication of certain trades where this could be detrimental to market liquidity and based on specified criteria, e.g. liquidity of the underlying bond.

ICMA and its members believe that the inclusion of meaningful post-trade data for the sovereign bond market (including bonds issued by supranationals and sovereign agencies) is fundamental to the integrity of the EU consolidated tape. This will also help to enhance the resilience and liquidity of EU sovereign bond markets, benefiting national issuers and supporting economic growth.  

Under the current MiFIR post-trade reporting regime, details of a significant number of sovereign bond trades are masked indefinitely, undermining the usefulness of this information and compromising the objectives and benefits of enhanced post-trade transparency in the Union. The ICMA proposal aims to optimise the amount of available transparency while providing sufficient protection for smaller issuer countries, market makers and other liquidity providers. It is also intended to be a relatively uncomplicated and easily adoptable framework that integrates the key determinants of underlying market liquidity.

The suggested framework for sovereign bond transparency allows for the reporting of certain transactions to be deferred for a limited period based on considerations around the relative size of the transaction and the determined liquidity of the underlying bonds. This also recognises that the underlying market structure and liquidity dynamics for sovereign bonds is very different to that of corporate bonds, thereby requiring a distinct transparency framework.  The thresholds for determining the application of a deferral are based on three key variables: the size of the transaction; the outstanding amount of the underlying issue; and the time to maturity of the underlying bond. ICMA recommends that it will be for the authorities to determine the appropriate calibrations of the thresholds and deferral as part of the Level 2 regulatory process, with the input of a formalised advisory group of market experts. But ICMA believes that its suggested framework, informed by extensive data analysis, provides a solid base for such future considerations.

The proposal is the culmination of more than six months’ work undertaken by a group of ICMA member firms, representing a broad range of participants and interests, including sell-side and buy-side firms active in the EU and global sovereign bond markets. It follows ICMA’s earlier proposal for an EU transparency framework for corporate bonds.

ICMA

© ICMA