2015年-FCA英国金融行为监管局_occasional_paper_6_34页_2mb

Summary of Occasional Paper No.6: Transparency in the UK Bond Markets

Core Content

This paper provides an overview of the UK bond markets in the context of the Markets in Financial Instruments Directive II (MiFID II) and its implications for transparency requirements in non-equity markets. It uses detailed transaction reporting data from the UK Financial Conduct Authority (FCA) to explore the structure and characteristics of the UK bond markets, with a focus on how transparency affects market functioning.

Main Findings

• Market Diversity: The UK bond market is highly diverse, with significant differences in market participants, trading methods, and the risk profiles of traded instruments.
• Trading Frequency and Liquidity: Most UK-listed bonds are traded sporadically, but some are more liquid and trade frequently. Liquidity profiles vary widely during the lifetime of a bond.
• Off-Exchange Trading: A large proportion of bond transactions occur off-exchange, indicating a reliance on over-the-counter (OTC) trading.
• Trading Costs: Trading costs have decreased over the sample period and are influenced by transaction size, bond riskiness, and maturity.
• Market Structure: The UK bond market appears to follow a spoke and hub structure, with most trades occurring between broker-dealers and only a few between buy-side participants. There is a moderate level of concentration in broker and market maker services, depending on the segment of the market.

Key Information

• MiFID II Impact: MiFID II will introduce pre- and post-trade transparency for non-equity instruments on EEA trading venues, with off-exchange trades also subject to transparency requirements. The regime will take liquidity and transaction size into account to balance transparency benefits with potential adverse effects on liquidity.
• Transparency and Market Failures: The paper discusses the rationale for transparency regimes based on the assumption of market failures such as asymmetric information and externalities. However, it also notes that increased transparency may have negative effects on liquidity and competitive behavior.
• Literature Review: The literature on transparency effects is divided into two strands: information asymmetry and predatory trading. Increased transparency can reduce adverse selection but may also expose market makers to predatory trading strategies.
• Empirical Evidence: Studies on the US corporate bond market show that increased post-trade transparency can reduce transaction costs. However, the effects of transparency on market quality are context-dependent and vary by financial instrument and market structure.

Market Characteristics

• Bond Issuers: The majority of UK-listed bonds are issued by financial institutions (79%). Sovereign and corporate non-financial bonds account for less than 20% of all bonds.
• Issue Size: Over 45% of bonds have an issue size between £100 million and £1 billion.
• Bond Types: Fixed-rate bonds make up the largest proportion (41.4%), followed by floating-rate bonds (33.1%). Other types include index-linked, zero-coupon, and convertible bonds.
• Currency: Approximately 39.5% of trades are in British pounds (GBP), 29.5% in Euros (EUR), and 22.1% in US Dollars (USD). The share of GBP trades remains relatively stable throughout the sample period.
• Credit Ratings: Most government bonds are highly rated, while corporate non-financial bonds are more frequently in the middle of the investment grade segment. The most actively traded bonds, in relative terms, are prime sovereign bonds, followed by medium and speculative-grade financial and corporate non-financial bonds.

Conclusion

The paper highlights the need for a nuanced approach to transparency in the UK bond markets, emphasizing that regulatory interventions should be calibrated based on the specific features of different instruments and participants. While transparency can improve market quality and reduce transaction costs, it may also have unintended consequences on liquidity and competition. Therefore, the design of transparency regimes must consider the complexity and diversity of the bond market.

Methodology

• Data Source: The analysis is based on the Sabre II dataset, which includes UK-listed bond transaction reports from January 2008 to July 2011.
• Data Enhancement: The dataset was enhanced using Thomson Reuters Datastream to include additional bond characteristics and daily price data.
• Data Cleaning: Several steps were taken to ensure data quality, including excluding weekend and holiday trades, controlling for double-counting, and filtering out erroneous transactions.

Authors and Acknowledgements

• Authors: Matteo Aquilina, Darren Butterworth, Felix Suntheim, Christian Winkler, and Carla Ysusi.
• Biographical Note: The authors work in the Chief Economist's Department of the Financial Conduct Authority.
• Acknowledgements: The authors thank Peter Andrews, Montserrat Farina, Alex Gaigl, Fabio Braga, and Giovanni Cespa for their support and insights.

Recommendations

• The design of transparency regimes should take into account the specific features of the UK bond market, such as liquidity profiles, trading frequency, and the nature of participants.
• Further research is needed to fully understand the impact of transparency on market functioning and to assess the optimal level of transparency across different instruments and market segments.