28 May 2012

IPE: Institutions should lobby 'aggressively' against EU trade reporting proposals

Institutional investors should lobby "aggressively" against EU proposals to limit delays in trade reporting, according to JPMorgan, as they would further decrease supply in the secondary bond and equity markets.

The measures aim to increase transparency and are proposed in the second Markets in Financial Instruments Directive (MiFID II) and Markets in Financial Instruments Regulation (MiFIR), Michael Ridley, managing director at JPMorgan, told the International Capital Market Association conference.

Ridley said investment banks welcome greater transparency, pointing out that the secondary market had become less liquid over the last five years in the absence of a proper transparency regime – with dealers taking less risk, investors expressing less conviction, and supply now relatively constrained to the bond market. 

However, Ridley also claimed that the measures within MiFID II and MiFIR aimed at limiting the time financial firms can delay publishing trade reports could dry up the secondary market even further and lead to higher premium to be paid by investors. He said: "Institutional investors who hold large amounts of cash currently only want to buy equities in the primary market, as it comes at a decent concession to the secondary market".

While he stressed that it was important for regulators to have access to market trade prices to ensure best execution in the interest of investors, he also argued for more protection on the sell side. "In a market that has become increasingly less liquid over the past five years, we believe that dealers need to be protected when they take on risk to provide financial solutions for investors", he added.

Ridley called on institutional investors to lobby "aggressively" against those measures within the MiFID II and MiFIR, as an investment bank's aim was first and foremost "to protect liquidity in the market rather than protect profitability".

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