Bond traders want prices concealed to sustain liquidity


FINRA Summons Banks and Asset Managers over Market Fears

Robin Wigglesworth and Joe Rennison
Financial Times, London
Sunday, June 14, 2015

NEW YORK -- A US financial regulator has summoned a clutch of senior executives from banks and asset managers for two meetings to explore potential solutions to a liquidity crunch confronting bond markets.

According to people familiar with the matter, the Financial Industry Regulatory Authority, or FINRA, has called the meetings to discuss the tougher bond trading environment, a phenomenon that some people -- including Blackstone's Stephen Schwarzman, JPMorgan's Jamie Dimon, and economist Nouriel Roubini -- fret could trigger or exacerbate the next financial crisis. ...

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One of the measures the financial industry will propose to FINRA is introducing delayed reporting requirements when trading big blocks of debt, a move that would run counter to the trend toward increased transparency in financial markets. ...

US corporate bond trades have to be reported within 15 minutes to FINRA's Trade Reporting and Compliance Engine, or TRACE, a rule introduced in 2002 to shed some light in the traditionally murky debt trading world.

The reporting of the size is tiered up to $10 million for investment-grade debt, and $5 million for junk bonds. But if an asset manager sells a $100 million chunk of bonds to an investment bank at a discount due to the big size, that becomes the new market price, making it difficult for the bank to gradually sell the position at a profit -- discouraging them from playing the traditional market-making role.

The industry is therefore keen to help unclog corporate bond trading by introducing a one-day delay to publishing bigger trades on TRACE.

"We have seen with the advent of TRACE and real-time reporting in derivatives that liquidity has gone down," William De Leon, a senior executive at Pimco, said at a conference on bond trading last week. ...

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