Associations and Corporation commission research to contribute to transparency debate in European bond markets

The Association of British Insurers (ABI), the Corporation of London, the International Capital Market Association (ICMA), the Investment Management Association (IMA), and the London Investment Banking Association (LIBA), announced today that they have jointly commissioned independent research into European bond markets.

This cross-market project will be used to inform the associations’ input into the European Commission’s review of bond market transparency, required by the MIFID (The Markets in Financial Instruments Directive). The Commission’s review is due to be completed by April 2007.

The research will seek to answer a range of questions relevant to a comprehensive regulatory review of market transparency, including:


- Do European bond markets deliver efficient market outcomes?

- To the extent that outcomes are not efficient, could improved pre-and /or post-trade transparency improve bond market efficiency?

- To what extent will increased transparency occur as part of the natural evolution of bond markets?

- To what extent can market participants be encouraged to develop their own solutions and what can only be achieved by direct regulatory intervention?

This research will take the form of two independent studies. One will concentrate on the corporate bond market; the second will cover sovereign debt.

The Centre for Economic Policy Research (CEPR) has been commissioned to undertake both studies. Professor Bruno Biais of Toulouse University and CEPR will lead the study on European corporate debt markets. Professor Richard Portes of the London Business School and CEPR will lead the study on European sovereign debt markets. Both studies are expected to be published early in 2006.

Heads of the associations and Corporation welcomed the launch of both projects.

Sir Adam Ridley, Director General of LIBA, said "Regulators, including the Commission, are beginning to accept that before regulating they need to be clear that intervention is necessary and will produce a net economic benefit. We welcome this approach, and believe it should be applied to the Commission’s review of bond market transparency.

This research will be an important contribution to a well founded debate on the role of regulators in European bond markets."

Richard Saunders, Chief Executive of the IMA, said "Lack of transparency in a market is not of itself evidence of market failure. We are interested in having markets that deliver a fair outcome for all users. This may or may not involve additional transparency. If the research shows that there are issues that require change, we would expect the regulators to assess first the potential for a market solution, before proposing intervention."

Peter Montagnon, Director of Investment Affairs at the ABI said "Any decision about transparency needs to be made on the basis of full understanding so that the markets work in the interest of all their users. As investors, we are therefore happy to work with the sell-side, and other participants in commissioning this research."

John Langton, Chief Executive and Secretary General of ICMA, said "Our decision to commission the studies also reflects our view that there is not a great deal of up-to-date research published on European bond markets. Much of what is available looks at bond pricing and does not consider more fundamental issues such as the efficiency of the bond markets, including issues such as liquidity and the role of transparency. Moreover the research is heavily weighted towards the US markets, which do not operate on the same model as European bond markets."

Michael Snyder, Chairman of Policy and Resources, Corporation of London said "If regulation is to support rather than hinder the competitiveness of financial markets, it must be based on a clear understanding of market structures and dynamics. The Corporation of London sponsors a wide range of research to facilitate this sort of understanding, and sees these projects as a major component of its contribution to the move towards well-informed and market focussed regulation."

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