The International Capital Market Association (ICMA) has published a proposal for a post-trade transparency framework for sovereign bonds traded in the EU.
ICMA says the initiative will help to inform the current discussions among policy makers in the ongoing MiFIR review, and should help “pave the way for the inclusion of meaningful, well-calibrated” sovereign bond data in the EU bond consolidated tape.
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.
The association has published three key recommendations for the proposal. Firstly, the need for a harmonised approach to sovereign bond market transparency across the different EU jurisdictions.
It has also recommended an end to the current optionality for volume omission and indefinite aggregation of trades as well as the possibility for deferring the publication of certain trades where this could be detrimental to market liquidity.
The latter would also be based on specified criteria, for example liquidity of the underlying bond.
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, ICMA says.
This also recognises that the underlying market structure and liquidity dynamics for sovereign bonds is very different to that of corporate bonds, therefore requiring a distinct transparency framework, the association adds.
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 authorities will be required 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.
Under the current MiFIR post-trade reporting regime, details of a significant number of sovereign bond trades are masked indefinitely.
This regime undermines the usefulness of this information and compromises the objectives and benefits of enhanced post-trade transparency in the EU, argues ICMA.
