your hand and do so gaining no benefit . Signalling and leakage will negatively impact your ability to find liquidity later down the line .”
If regulators do not step in , the buy-side has warned it means end investors could lose out as price manipulation and information leakage could increase under the new rules .
Jean Sayegh , senior portfolio manager at Lyxor Asset Management , explained : “ As soon as you need to communicate with the outside world about future trades , you will face an issue of price manipulation and decreasing liquidity .”
Many buy-side dealers are scared to speak out publically because they are frightened that it may be seen as a slight by the regulator .
One fixed income dealer – who asked to remain anonymous – explained pre-trade transparency rules simply wont work in fixed income markets .
He said : “ The market is worried about an increase in price manipulation and information leakage following the implementation of pre-trade transparency rules . Those are the issues we face in a pre-trade transparent world .”
Price manipulation has been raised as a serious issue , with trades often rejected and figures shown on screens not representative of executable prices .
ATTRACTING INTEREST However , representatives of the platforms that advertise these prices maintain that the bid and offer quotes on the screen are purely to attract interest .
Jonathan Gray , head of fixed income EMEA at Liquidnet , said : “ The ALLQ model is an example of where banks or liquidity providers advertise their prices .
“ The bid and offer quotes … give the impression to the buy-side that there is liquidity . When you ask for a firm bid or offer however , they are often reluctant to provide one .”
A European-wide push for the electronification of fixed income transactions under MiFID II has been set out by the European Securities and Markets Authority ( ESMA ) with implementation beginning from 3 January 2018 .
But many say that these expectations are unrealistic .
Trading consultancy Bridport & Co often handles queries from clients who are facing this particular issue .
Managing partner Jason Bell , said he often tells his clients that screen prices cannot be relied upon .
He explained : “ Many market makers are acting increasingly like brokers themselves and working orders . It has become ever more important to know and understand how the street works and protecting client orders is a serious issue .
“ If it becomes common knowledge a large order is being worked then it is highly probable that any bids received will be cancelled and nobody will bid for the paper .”
Given the widespread discussion on the topic , buy-side trade bodies have been keen to take action .
Arjun Singh-Muchelle , senior adviser on capital markets at the Investment Association said the organisation has reservations about some of the proposed rules under MiFID II for fixed income trading .
He said : “ We were told that one of the reasons the instrument-by-instrument approach was chosen for the fixed income market was because it works for equities .
“ As part of our role , we have actively represented our members views around the appropriate liquidity calibration method for the purposes of pre-trade transparency ahead of the rules being set .”
The Association for Financial Markets in Europe ( AFME ) agreed that the MiFID II rules could “ further damage liquidity ”. Victoria Webster , director of fixed income at AFME said : “ We see the appropriate calibration of the MiFIR pre-trade transparency regime for bonds as particularly critical because of the generally
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