REGULATORS URGED TO REVIEW BOND REJECTIONS
Asset manager showed regulator how on-screen prices can be impossible to execute .
Representatives of the UK ’ s Financial Conduct Authority ( FCA ) were shown data on the percentage of bond trades rejected against prices advertised on Bloomberg as work on the electronification of the fixed income market continues .
It happened at an off-site visit by a specialist FCA team who saw first-hand the frequency with which trades were rejected , despite buy-side traders offering to match advertised prices on Bloomberg .
It comes amid strong resistance to some of the changes that have been proposed under the Markets in Financial Instruments Directive II ( MiFID II ), which are aiming to enhance transparency in Europe ’ s fixed income markets .
However , in March , the European Commission ’ s financial services director general Olivier Guersent wrote to the European
Markets and Securities Authority calling on it to take a ‘ more cautious approach ’ in its radical revisions to fixed income regulation .
Delegates at The Trade ’ s MiFID II event in Frankfurt on 10 May called on regulators to do more to understand the pressure points in the market .
Chris Bowie , partner at TwentyFour Asset Management , explained how his firm invited the FCA to see how trading fixed income is significantly different to trading in equities .
He said : “ We invited the FCA to show them what , in their view , is the most liquid market . They saw the offer prices on screen , but all banks rejected the trades .
“ There was a look of horror on the regulators ’ face . In their view , the screen price is a real price so there must be liquidity , but that simply isn ’ t the case .”
Bowie added : “ Regulators seem reluctant to change , but they want
to look at Bloomberg ’ s data on rejected offers in fixed income .”
The FCA confirmed that technical specialist Felix Suntheim and Matteo Aquilina , a manager in the FCA ’ s chief economist ’ s department , visited TwentyFour Asset Management and looked at the data from Bloomberg .
A spokesperson at the FCA said : “ Following the publication in March of an economic paper on liquidity in the UK ’ s corporate bond market the two FCA economists who wrote the paper took up the offer to visit TwentyFour ’ s office to discuss their findings . The aim of the meeting was simply to share insights .”
Christoph Hock , head of trading at Union Investment and a panelist at the Trade ’ s MiFID II event in Frankfurt , said : “ With information handed down to regulators [ from Europe ], it is a common issue that regulators are dislocated from this .”
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